Nov 2/Chinese yuan falters badly overnight/Asian bourses fall but Europe in the green/FRBNY repatriates 20 tonnes of gold to Germany/Non performingloans in Greece rise to 57% or over 107 billion/Race is on to recapitalize before Jan 1/China dumping German bunds/Russian commercial airliner blown up in mid air on Saturday/ No word yet on official cause/Saudi Arabia’s credit default swaps rise to the highest in 6 years/Atlanta Fed lowers 4th quarter GDP to 1.9% from 2.4%/

Gold:  $1135.80 down $5.70   (comex closing time)

Silver $15.41  down 16 cents

In the access market 5:15 pm

Gold $1133.70

Silver:  $15.41


First, here is an outline of what will be discussed tonight:

At the gold comex today,  we had a very poor delivery day, registering 0 notices for nil ounces.  Silver saw 0 notices for nil oz.

Several months ago the comex had 303 tonnes of total gold. Today, the total inventory rests at 208.42 tonnes for a loss of 95 tonnes over that period.

In silver, the open interest fell by 3440 contracts despite silver being up 5 cents in Friday’s trading.  The total silver OI now rests at 168,945 contracts In ounces, the OI is still represented by .844 billion oz or 120% of annual global silver production (ex Russia ex China).

In silver we had 0 notices served upon for nil oz.

In gold, the total comex gold OI fell by a rather large 7,683 to 451,117 contracts as gold was down $5.70 on Friday.  We had 0 notices filed for nil oz today.

We had a huge withdrawal in gold inventory at the GLD to the tune of 2.98 tonnes / thus the inventory rests tonight at 689.28 tonnes. The appetite for gold coming from China is depleting not only gold from the LBMA and GLD but also the comex is bleeding gold. It sure looks like 670 tonnes will be the rock bottom inventory in GLD gold. It looks to me that China has taken the last amounts of physical gold from the GLD. I guess the only place left for China to receive physical gold will be the FRBNY and the comex.   In silver,a big withdrawal of 716,000  oz in silver inventory   / Inventory rests at 313.817 million oz.

We have a few important stories to bring to your attention today…

1. Today, we had the open interest in silver fell by 3440 contracts down to 168,945  despite the fact that silver was up 3 cents with respect to Friday’s trading.   The total OI for gold fell by 7,683 contracts to 451,117 contracts as gold was down $5.70 on Friday.

(report Harvey)

2.Gold trading overnight, Goldcore

(/Mark OByrne)

3.  FRB gold report


b) zero hedge discusses the above FRBNY

(zero hedge)

 i) Last night, 9:30 pm SUNDAY night, MONDAY morning Shanghai time.  Japan Nikkei plummets, Shanghai falls as well.
Japan surprises with no QE.  USA/Yen cross rises
(zero hedge)
 ii) China relaxes capital controls/yuan after rising falls badly
(zero hedge)
iii) Japan’s Nikkei falls badly on no QE being planned
(zero hedge)
iv)  China arrests insider trader plus 3 high frequency traders
(zero hedge)
v) Oil shipping vessels are overloaded as their costs to ship plummet.
(zero hedge)
 i) Problems are now occurring in the Greek banks as non performing loans surpass 50%.  There is a race to get the recapitalization of banks finished prior to Jan 1 or else new laws come into force which will confiscate depositors money (along with corporate cash)
(zero hedge)
ii) ECB admits that QE is not working
(zero hedge)

iii) China is dumping German bunds:

(courtesy zero hedge)
 The fall in oil has caused massive capital and current account cash outflow from a positive surplus of 4.2 % of GDP to a deficit of 7.9% of Canada’s GDP to vacate Canada.
This could bring on depression like conditions inside Canada.
i) Seven  huge stories whereby a Russian commercial aircraft exploded in mid air on Saturday
(zero hedge/Bloomberg/Reuters/)
ii) Turkey’s Erodgan wins the election and yet turmoil occurs immediately after the results are announced
(zero hedge)
iii) Saudi Arabia credit default swaps rises to 6 yr highs
(zero hedge)
Oil drops back into the 45 dollar column due to fears of lack of China storage space for the oil
(zero hedge)
 none today

9 USA stories/Trading of equities NY

i) ISM PMI’s in the USA weakest in 3 years and totally at odds with the Markit PMI

(ISM PMI/zero hedge)

ii) Federal Co op insurance providers for Obamacare dropping like flies

(zero hedge)

iii) Fed admits that something is going on in the economy that they do not understand

(zero hedge)

iv) Goldman Sachs downgrades Valeant

(Goldman Sachs/zero hedge)

v) David Stockman takes on Valeant

(courtesy David Stockman/ContraCornerBlog)

vi Atlanta Fed lowers 4th quarter GDP from 2.5% down to 1.9%

(Atlanta Fed/zero hedge)

10.  Physical stories


i)  a good account on Agnico Eagle gold mines
(seeking Alpha)
ii) Ronan Manly states that Venezuela will be out of gold by the end of December
(Ron Manly/Bullionstar)
iii) Koos Jansen comments that the gold demand from China came in at 57 tonnes last week.
(Koos Jansen)
iv)  Craig Hemke discusses the fraudulent Comex
(Craig Hemke/TFMetals)
v) Andrew Maguire talks with Kingworldnews.  He comments that Goldman Sachs is breaking ranks with the bullion bank gold cartel, converting as much of paper gold into physical as possible as well as lowering its amount of paper gold obligations
(Andrew Maguire/Kingworldnews)
vi)  Michael Kosares on the huge printing of fiat and gold
(Mike Kosares)
vii) Central banks on policy is to inflate
(Egon Von Greyerz)

Let us head over to the comex:

The total gold comex open interest fell from 458,800 down to 451,117 for a loss of 7683 contracts as gold was down $5.70 with respect to Friday’s trading.   For the past two years, we have strangely witnessed two interesting developments with respect to the gold open interest:  1) total gold comex collapse in OI as we enter an active delivery month, and 2) a continual drop in the amount of gold standing in an active month. We now witness both of these events despite the fact that November is a non active delivery month.  We have now left the active delivery month of October and enter November. The November contract went down by 70 contracts down to 293.  We had 6 notices filed on Friday, so we lost 64 contracts or  6400 0z that will not stand for delivery. The big December contract saw it’s OI fall by 11,021 contracts from 298,145 down to 287,124. The estimated volume today (which is just comex sales during regular business hours of 8:20 until 1:30 pm est) was 112,614 which is poor. The confirmed volume on Friday (which includes the volume during regular business hours + access market sales the previous day was poor at 135,126 contracts.
Today we had 0 notices filed for 600 oz.
And now for the wild silver comex results. Silver OI fell by 3440  contracts from 172,385 down to 168,945 despite the fact that the price of silver was up 3 cents in price on Friday.  The bankers continue to pull their hair out trying to extricate themselves  from their silver mess (the continued high silver OI with it’s extremely low price, combined with the banker’s massive physical shortfall) as the world senses something is brewing in the silver arena. The huge rise in silver OI necessitates  massive raids by the bankers as they had to cover their rather large shortfall.  We now enter the non active delivery month of November. The OI fell by 18 contracts down to 11. We had 3 notices filed on Friday so we lost 15 contracts or 75,000 oz that will not stand for delivery. The huge (and active) delivery month of December saw it’s OI fall by 3,493 contracts down to 106,538. The estimated volume for today (regular hours Comex) came in at an good at 38,083.  The confirmed volume on Friday (comex + globex) was an very good at 46,244..
We had 0 notices filed for nil oz.

October contract month:

INITIAL standings for November/First day notice

Nov 2/2015

Withdrawals from Dealers Inventory in oz   nil
Withdrawals from Customer Inventory in oz  nil  nil


Deposits to the Dealer Inventory in oz nil
Deposits to the Customer Inventory, in oz  nil
No of oz served (contracts) today 0 contracts

nil oz 

No of oz to be served (notices) 293 contracts

(29,300 oz)

Total monthly oz gold served (contracts) so far this month 6 contracts

600 oz

Total accumulative withdrawals  of gold from the Dealers inventory this month   nil
Total accumulative withdrawal of gold from the Customer inventory this month nil
 Today, we had 0 dealer transactions
Total dealer withdrawals:  nil oz
we had 0 dealer deposits
total dealer deposit:  zero
We had 0 customer withdrawals:
total customer withdrawal nil  oz
We had 0 customer deposits:

Total customer deposits nil  oz

we had 0 adjustment:

 JPMorgan has a total of 10,777.279 oz or.3352 tonnes in its dealer or registered account.
***JPMorgan now has 580,809.509 oz or 18.06 tonnes in its customer account.
Today, 0 notices was issued from JPMorgan dealer account and 0 notices were issued from their client or customer account. The total of all issuance by all participants equates to 0 contracts of which 0 notices were stopped (received) by JPMorgan dealer and 0 notices were stopped (received) by JPMorgan customer account.
To calculate the final total number of gold ounces standing for the Oct contract month, we take the total number of notices filed so far for the month (6) x 100 oz  or 600 oz , to which we  add the difference between the open interest for the front month of Nov.( 293 contracts) minus the number of notices served upon today (0) x 100 oz   x 100 oz per contract equals the number of ounces standing.
Thus the initial standings for gold for the Nov. contract month:
No of notices served so far (6) x 100 oz  or ounces + {OI for the front month (293)– the number of  notices served upon today (0 x 100 oz which equals 29,900 oz  standing  in this month of Nov (0.9300 tonnes of gold).
We thus have 0.9300 tonnes of gold standing and only 7.063 tonnes of registered gold (for sale gold/dealer gold) waiting to serve upon those standing.
Total dealer inventory 227,085.579 oz or 7.063 tonnes
Total gold inventory (dealer and customer) =6,700,779.364   or 208.42 tonnes)
Several months ago the comex had 303 tonnes of total gold. Today the total inventory rests at 208.42 tonnes for a loss of 95 tonnes over that period.
And now for silver

November initial standings/First day notice

Nov 2/2015:

Withdrawals from Dealers Inventory nil
Withdrawals from Customer Inventory 360,783.940 oz 


Deposits to the Dealer Inventory nil
Deposits to the Customer Inventory 1,082,711.58  oz


No of oz served (contracts) 0 contracts  (nil oz)
No of oz to be served (notices) 11 contracts 

55,000 oz)

Total monthly oz silver served (contracts) 3 contracts (15,000 oz)
Total accumulative withdrawal of silver from the Dealers inventory this month nil oz
Total accumulative withdrawal  of silver from the Customer inventory this month 424,645.6 oz

Today, we had 0 deposit into the dealer account:

total dealer deposit; nil oz

we had 0 dealer withdrawals:
total dealer withdrawal: nil  oz
We had 1 customer deposit:
 i) Into Scotia:  1,082,711.58 oz

total customer deposits: 1,082,711.58 oz

We had 1 customer withdrawal:
i) Out of Brinks: 360,783.940

total withdrawals from customer: 360,783.94   oz

we had 2 adjustments
 i) Out of Delaware:
77,990.862 oz was removed from the dealer and this landed into the customer account of Delaware
iii) Out of Scotia:
we had 10,531.07 oz removed from the dealer and this landed into the customer account of Scotia
Total dealer inventory: 43.045 million oz
Total of all silver inventory (dealer and customer) 162.813 million oz
The total number of notices filed today for the November contract month is represented by 0 contracts for nil oz. To calculate the number of silver ounces that will stand for delivery in Nov., we take the total number of notices filed for the month so far at (3) x 5,000 oz  = 15,000 oz to which we add the difference between the open interest for the front month of November (11) and the number of notices served upon today (0) x 5000 oz equals the number of ounces standing.
Thus the initial standings for silver for the Nov. contract month:
3 (notices served so far)x 5000 oz +(11) { OI for front month of November ) -number of notices served upon today (0} x 5000 oz ,=70,000 oz of silver standing for the Nov. contract month.
the liquidation in the dealer silver continues. 


The two ETF’s that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.There is now evidence that the GLD and SLV are paper settling on the comex.***I do not think that the GLD will head to zero as we still have some GLD shareholders who think that gold is the right vehicle to be in even though they do not understand the difference between paper gold and physical gold. I can visualize demand coming to the buyers side:i) demand from paper gold shareholders ii) demand from the bankers who then redeem for gold to send this gold onto China
And now the Gold inventory at the GLD:
Nov 2..2015: another huge withdrawal of 2.98 tonnes at the GLD/Inventory rests at 689.28 tonnes
oct 30/a huge withdrawal in gold inventory of 2.08 tonnes at the GLD/Inventory rests at 692.26 tonnes
Oct 29/no change in gold inventory at the GLD.Inventory rests at 694.34 tonnes
Oct 28.2015: a huge withdrawal of 1.2 tonnes in gold inventory/rests tonight at 694.34
Oct 27/no change in gold inventory/rests tonight at 695.54 tonnes
Oct change in gold inventory/rests tonight at 695.54 tonnes
Oct 23/ a huge withdrawal of 1.78 tonnes of gold at the GLD/Inventory rests at 695.54 tonnes
Oct 22./no change in gold inventory at the GLD/Inventory rests at 697.32 tonnes
Oct 21./we had no change in gold inventory at the GLD./Inventory rests at 697.32 tonnes.
Oct 20./no change in gold inventory at the GLD/Inventory rests at 693.75 tonnes/
Oct 19.2015: A huge increase of 3.57 tonnes into the GLD/Inventory rests at 697.32 tonnes.  Highly unusual to have 3 consecutive deposits and withdrawals in a row!!
Oct 16./we had a huge withdrawal of 6.25 tonnes/inventory 693.75 tonnes
Oct 15.2015: a huge increase of 5.06 tonnes/inventory rests at 700.00
Oct 14/a huge increase  in gold tonnage of 7.74 tonnes/inventory 694.94 tonnes
oct 13/no changes in gold inventory at the GLD/rest at  687.20 tonnes
Oct 12./2015:  no change in gold inventory at the GLD/rests at 687.20 tonnes
Nov 2/2015 GLD :689.28 tonnes*
* London is having a tough time sourcing gold. I believe that the last few days of additional GLD gold is a paper gold addition and not real physical. I sure looks like there is stress inside the GLD!!

And now SLV

Nov 2/a withdrawal of 716,000 oz from the SLV/Inventory rests tonight at 313.817 million oz

Oct change in silver inventory at the SLV/Inventory rests at 314.532 million oz

Oct 29/a big withdrawal of 1.001 million oz from the SLV/Inventory rests at 314.532 million oz

Oct 28.2015: no change in silver inventory at the SLV//inventory rests at 315.533 million oz.

Oct 27/no change in silver inventory at the SLV/Inventory rests at 315.533 million oz/

Oct 26/no change in silver inventory at the SLV/Inventory rests at 315.533 million oz/

Oct 23./no change in silver inventory at the SLV/Inventory rests at 315.533 million oz

Oct 22./no change in silver inventory at the SLV/Inventory rests at 315.533 million oz

Oct 21:a we had a small addition in silver ETF inventory of 381,000 oz/inventory rests tonight at 315.533 million oz

Oct 20.2015/ no change in silver ETF/Inventory rests at 315.152 million oz

Oct 19.2016: no change in silver ETF/Inventory rests at 315.152 million oz

Oct 16/no change in silver ETF/inventory rests tonight at 315.152 million oz

Oct 15./no change in silver ETF inventory/rests tonight at 315.152

Oct 14/no change in silver ETF/silver inventory/rests tonight at 315.152 million oz

oct 13/no change in silver ETF /silver inventory/rests tonight at 315.152 million oz

:oct 12/ no change in the silver ETF/silver inventory rests tonight at 315.152 million oz

Nov 2/2015:  tonight inventory rests at 313.817 million oz***
 ** the jury is still out if the addition of silver is real or paper silver
especially with London in silver backwardation.
And now for our premiums to NAV for the funds I follow:
Sprott and Central Fund of Canada.(both of these funds have 100% physical metal behind them and unencumbered and I can vouch for that)
1. Central Fund of Canada: traded at Negative 9.3 percent to NAV usa funds and Negative 9.7% to NAV for Cdn funds!!!!!!!
Percentage of fund in gold 61.8%
Percentage of fund in silver:38.1%
cash .1%( Nov 2/2015).
2. Sprott silver fund (PSLV): Premium to NAV rises to+0.45%!!!! NAV (Nov 2/2015) (silver must be in short supply)
3. Sprott gold fund (PHYS): premium to NAV rises to – .22% to NAV Nov 2/2015)
Note: Sprott silver trust back  into positive territory at +0.45% Sprott physical gold trust is back into negative territory at -.22%Central fund of Canada’s is still in jail.

Press Release OCT 6.2015

Sprott Increases Offer for Central GoldTrust and Silver Bullion Trust

Offering an Additional Premium of US$0.10 per GTU Unit payable in Sprott Physical Gold Trust Units
and US$0.025 per SBT Unit payable in Sprott Physical Silver Trust Units

When Announced on April 23, 2015, Offers Represented a Premium of US$3.06 per GTU Unit and US$0.91 per SBT Unit for Unitholders Based on Trading Value and the NAV to NAV Exchange Ratio

Premiums as of October 5, 2015 (including the Increased Consideration) are US$1.14 per GTU Unit and US$0.61 per SBT Unit

Notice of Extension and Variation to be Filed Shortly

Offers Will Now Expire on October 30, 2015 –Unitholders Urged to Tender Now

TORONTO, Oct. 6, 2015 (GLOBE NEWSWIRE) — Sprott Asset Management LP (“Sprott” or “Sprott Asset Management”), together with Sprott Physical Gold Trust (NYSE:PHYS) (TSX:PHY.U) and Sprott Physical Silver Trust (NYSE:PSLV) (TSX:PHS.U) (together the “Sprott Physical Trusts”), today announced that it has increased the consideration payable to unitholders in connection with its offers to acquire all of the outstanding units of Central GoldTrust (“GTU”) (TSX:GTU.UN) (TSX:GTU.U) (NYSEMKT:GTU) and Silver Bullion Trust (“SBT”) (TSX:SBT.UN) (TSX:SBT.U) (the “Sprott offers”).

Unitholders will now receive an additional premium of US$0.10 per GTU unit payable in Sprott Physical Gold Trust units and US$0.025 per SBT unit payable in Sprott Physical Silver Trust units (the “Premium Consideration”), in addition to the units of Sprott Physical Gold Trust and units of Sprott Physical Silver Trust, respectively, being offered on a net asset value (NAV) to NAV exchange basis. Based on trading values and the NAV to NAV Exchange Ratio (as such term is defined in the Sprott offers) at the time Sprott announced its intention to make the Sprott offers on April 23, 2015, the offers reflected a premium of US$3.06 per GTU unit and US$0.91 per SBT unit. The premium as of October 5, 2015, based on trading values, the NAV to NAV Exchange Ratio and the Premium Consideration, represents US$1.14 per GTU unit and US$0.61 per SBT unit, respectively. In connection with this increase in consideration, the expiry time for each Sprott offer is extended to 5:00 p.m. (Toronto time) on October 30, 2015.

“Central GoldTrust and Silver Bullion Trust unitholders have been burdened for too long by a group of trustees committed to protecting the interests of the Spicer family. It is only through the public spotlight that the variety of undisclosed fees paid to supposedly independent trustees has forced public disclosures and hollow justifications. Sprott’s offers to unitholders are compelling and momentum is building as we continue to show the clear advantages of the offers. The response of the GTU and SBT trustees has been to penalize unitholders with the burden of paying for costly lawsuits and expensive advisors to protect the Spicer family and the fees they receive. We are accordingly increasing our offer to compensate unitholders for this abuse of trust, and encourage them to take advantage of this opportunity to exchange their units for an immediate premium, and trade a management committed to entrenchment to one committed to their best interests,” said John Wilson, Chief Executive Officer of Sprott Asset Management.

Added Wilson, “We have provided extensions to the offers so that no unitholders are left without this opportunity to exit an underperforming investment and enter into a high quality security that functions as intended, reflecting the value of the bullion held in the trust. Sprott appreciates the support of GTU and SBT unitholders to date and currently anticipates these extensions will be the final extensions to the Sprott offers.”

As of 5:00 p.m. (Toronto time) on October 5, 2015, there were 8,194,265 GTU units (42.46% of all outstanding GTU units) and 2,055,574 SBT units (37.60% of all outstanding SBT units) tendered into the respective Sprott offers. Total units tendered as of October 5, 2015, do not include pending units which are typically received on the date of expiration.

GTU and SBT unitholders who have questions regarding the Sprott offers, are encouraged to contact Sprott Unitholders’ Service Agent, Kingsdale Shareholder Services, at 1-888-518-6805 (toll free in North America) or at 1-416-867-2272 (outside of North America) or by e-mail

And now your overnight trading in gold and also physical stories that may interest you:
Trading in gold and silver overnight in Asia and Europe
(courtesy goldcore/Mark O’Byrne/Steve Flood)

Gold Selling “Malevolent Force”? – Dennis Gartman

Dennis Gartman, author of the institutionally well followed ‘The Gartman Letter,’ has asked questions about gold’s peculiar price action last week and raised the question as to whether there was official central bank manipulation of gold prices.

Gold was 2.4% higher in October but fell 2% last week as the Fed again suggested they may soon increase interest rates. Gartman’s assertion is significant as he is no so-called ‘goldbug’. In fact, he is the darling of Wall Street, Bloomberg, CNBC and is highly respected and followed by large hedge funds and financial institutions.

GoldCore: Gold in USD - 1 month

Gold in USD – 1 Month

He has been bearish on gold in recent months but the recent turmoil in currency markets has Gartman bullish on gold also in dollar terms since August.

“I think for the first time in a while, you can actually say the lows may have been in dollar-dominated gold,” Dennis Gartman told CNBC’s “Fast Money.”

Gartman is on record regarding his belief that gold is in a long term bull market in all currencies.

Here is the key extract regarding potential gold manipulation from the Gartman Letter on Friday:

As for the precious metals, the selling late Wednesday and all day yesterday was indeed severe, and even our positions in gold/euro and gold/yen have seen severe damage wrought upon them.

We find it hard to believe that the mere suggestion by the Federal Open Market Committee in its post-meeting communique on Friday that “liftoff” on the overnight Fed funds rate may take place at its December meeting can be responsible for this sort of egregious, serious, and now relentless selling, and we are almost of the mindset associated with the likes of the gold bugs and GATA that some malevolent “force” was behind the selling.

However, we are not going to travel down that road at the moment and sit tight with our positions, believing that the continued “experiments” with QE undertaken by the Bank of Japan and the European Central Bank shall work to the detriment of their currencies and to the support of gold. Nonetheless, the last 36 hours have been terribly dismaying …”

GoldCore Note: As ever, we view such manipulation as an opportunity for investors as it allows them to accumulate gold at artificially depressed prices.

The history of manipulation of the gold market is of short term success followed by ultimate failure and then much higher prices as was seen after the failure of the “London Gold Pool” in the late 1960s and gold’s massive bull market in the 1970s.

The golden beach ball has been pushed near the bottom of the ‘gold pool.’  The lower it is pushed in the short term, the higher it will surge in the long term.

Today’s Gold Prices: USD 1135.80 , EURO 1030.86 and GBP 733.86 per ounce
Friday’s Gold Prices: USD 1147.75, EUR 1042.70 and GBP 748.04 per ounce.

GoldCore: Gold in EUR - 1 month

Gold closed at $1141.50 on Friday a loss of $4.30 and  -1.98% overall for the week.  Silver lost $0.08 to close at $15.52, showing a -2.14% loss for the week.   Platinum lost $6 to $982.

Gold fell 2% last week as the Fed again suggested they may soon increase interest rates. However, it was 2.4% higher in October due to strong demand for physical gold bullion globally and especially in Germany, India and China.

We are now entering gold’s seasonal sweet spot from early November to the end of February as we enter the Indian festival and Chinese New Year periods.


Download Essential Guide To Storing Gold Offshore


Download Essential Guide To Storing Gold In Switzerland

Your monthy FRBNY report on earmarked gold movement:

FRBNY report came out today Oct 31.2015  ( two days late)

Earmarked gold August month:  8062  in million dollars @42.22 dollars per oz
Earmarked gold  Sept:  8035
total of gold removed:    27 million dollars  at 42.22 dollars per oz
Thus the number of oz:
27,000,000 divided by 42.22  = 639,507.3  oz
or 19.8 metric tonnes.
 No doubt that this gold is heading to Germany.


Withdrawals Of Gold From NY Fed Jump To 20 Tons In September, Total 276 Tons Since 2014

First it was Germany who redeemed 120 tons of physical gold in 2014; then it was the Netherlands who “secretly” redomiciled 122 tons of gold; then this past May, we learned that Austria would be the third “core” European nation to repatriate most of its offshore gold, held primarily in the Bank of England, redepositing it in Vienna and Switzerland.

Thanks to the latest NY Fed data released yesterday, we now know that beginning in 2014 and continuing through yesterday, the gold “bleeding” from the vault located 90 feet below street level at 33 Liberty Street (and which may or may not be connected by a tunnel to the JPM gold vault located just across the street at 1 Chase Manhattan Plaza) is not only continuing but accelerating.

As the chart below shows, while central banks assure the population that there is nothing to worry about when it comes to paper money, and in fact it is the evil ISIS terrorists who plot and scheme to crush the benevolent Fed with their terroristy “gold dinars” and if not that then their made in Hollywood propaganda movies, they have been quietly pulling gold from the biggest centralized depository of global gold in the world: the New York Federal Reserve.

According to the latest just released monthly update of foreign official assets held in custody at the NY Fed, in July the total holdings of foreign earmarked, i.e., physical, gold declined to just over $8 billion when evaluated at the legacy “price” of $42.22 per ounce. In ton terms, this means that after declining below 6000 tons in January, for the first time since FDR’s infamous gold confiscation spree


… the total physical gold held at the NY Fed dropped another 19.9 tons in September, down to 5,919.5 tons.

This was a doubling in gold withdrawals from 10 tons in August, and
is the highest withdrawal since January.

At just under 5,920 total tons in NY Fed inventory, this is the lowest amount of gold held in NY Fed custody in decades, and is the 20th consecutive month of flat or declining gold, and when added to previous outflows, amounts to 199 tons of gold withdrawn in the past 12 months, and a whopping 276 tons pulled since the start of 2014.

Indicatively, during the last crisis period, starting in March 2007 and lasting through November 2008, foreign central banks withdrew gold for a total of 20 out of 21 consecutive months, repatriating a grand total of 409 tons of gold. The last period of peak redemption culminated with the failure of Lehman in September 2008, the near failure of AIG in October and November 2008, coupled with the Fed’s bailout of the western financial system.

If past is prologue, one should ask: what current or future event is driving the ongoing redemption of gold from the NY Fed this time?


Gold demand from China:  57 tonnes in the last reporting week of Oct 19 through to )ct 23.
(courtesy Koos Jansen)
Posted on 30 Oct 2015 by

Russia’s VTB Bank Joins As SGE Member. Chinese Direct Gold Imports Increase

Another strong week for gold demand at the Shanghai Gold Exchange – China’s main physical gold bourse. From 19 until 23 October 57 tonnes have been withdrawn from the vaults of the Shanghai Gold Exchange (SGE), according to data released on Friday by the SGE. Year to date 2,119 tonnes have been withdrawn. With a little over two months left in 2015 SGE withdrawals, which capture the amount of Chinese wholesale gold demand, are set to reach more than 2,500 tonnes in 2015, breaking the record of 2013 at 2,197 tonnes.

SGE withdrawals have made a spectacular run up this year since the Chinese stock market came crumbling down in June. In between June and October SGE withdrawals have been 1,138 tonnes, up 37 % year on year.

The People’s Republic of China does not publish the amount of gold imported, however, from foreign trade statistics provided by other nations and physical turnover at the SGE we can estimate China will net import at least 1,300 tonnes of gold in 2015 – transcending net import in 2014, which was an estimated 1,250 tonnes. 

Whilst the SGE releases withdrawal data every week, foreign trade statistics are released on a monthly basis. Wholesale gold demand in China mainland was elevated in recent months, but it always remains to be seen exactly how much gold was net imported in order to supply the SGE.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 41

Let’s have a look at what gold trade data has already been released for the past months: Switzerland has net exported 21.69 tonnes of gold to China in September – up 28 % month on month – according to the most recent data from the Swiss Customs department. This is the largest amount of gold export to China from Switzerland in six months.

Switzerland China gold trade 2012 - sep 2015

Trade data from the Hong Kong Census And Statistics Department has not yet officially been released, but Reuters gave us a sneak preview. Net export from Hong Kong to China mainland in September was 97 tonnes, up 63 % month on month and the largest amount of gold export to China in ten months.

Foreign Trade statistics from the UK and other major gold trading hubs has not yet been published. Although not all gold trade data can be collected, we can see in the chart below, that displays currently known Chinese physical gold supply, gold import into China is steadily rising along side strong SGE withdrawals.

SGE withdrawals vs gold import China monthly september 2015
In this chart foreign trade statistics from Australia are not included for July, August and September, and foreign trade statistics from the UK are not included for September.  

As usual, apparent physical gold supply in China is much more than what the mainstream media would like you to believe. Most notably, since 2013 gold supply in China has been thousands of tonnes more than what consultancy firms like the World Gold Council and GFMS disclose as Chinese gold demand. On the LBMA conference in Vienna (18 – 20 October) it was discussed, again, that Chinese Commodity Financing Deals are the sole reason for the missing gold in China.

This is not true. Chinese Commodity Financing Deals (CCFDs) with respect to gold can be either conducted throughround tripping or gold leasing. Round tripping has got nothing to do with the Chinese domestic gold market and gold leasing can never have ‘swallowed’ a few thousand tonnes of gold from reaching genuine demand. Because the myths about CCFDs keep being repeated I will write a new extensive post on CCFDs.

VTB Bank Has Been Granted SGE Member Status

On the website of VTB Bank it was announced it has been granted SGE member status, with the right to participate in trading on the Shanghai International Gold Exchange (SGEI). VTB is the first Russian bank to enjoy member status of the Chinese exchange.

Russia has hardly been exporting non-monetary gold directly to China in recent years. Now VTB is an SGE member this will change, as Russian banks are often the exporters of mined gold of Russian mining companies. I will closely watch the foreign trade statistics provided by Russia’s customs department.

“Access to trading on China’s domestic precious metals market will give VTB Bank, which also trades on Western exchanges, more opportunities to sign gold deals in Shanghai. As an important element of our Chinese strategy, we continue working to develop the bank’s business and that of our clients in the Shanghai Free Trade Zone.…” saidHerbert Moos, Chairman of VTB Bank’s Management Board.

The biggest part of Russia’s mining output is sold to VTB and Sberbank, who sell it to the Russian central bank and foreign buyers – according to newswire EM Goldex

Russia’s largest gold mining company Polyus Group, that mined 53 tonnes in 2014, announced in early May it would start cooperating with China’s largest mining company China National Gold Group Corporation in resource exploration, technical exchanges and materials supply. Shortly after, we learned this cooperation is part of theSilk Road economic project that was initiated by China.

Polyus sells the lion share of its mine output through Russian banks. If we look at the 2014 Polyus Annual Report we can see it sold most if its gold (38 %) through VTB Bank.

Screen Shot 2015-10-30 at 3.18.22 pm
Courtesy Polyus Group.

In 2014 Polyus sold gold valued at 841 million US dollars through VTB Bank. In the past this gold has probably not been sold directly to China or through the SGEI. This is about to change since VTB is now SGE member.

VTB Bank’s SGE membership is significant, as it can been seen as more cooperation in the gold industry on the Eurasian continent along the Silk Road between Russia and China. 

Koos Jansen
E-mail Koos Jansen on:


(courtesy Craig Hemke)

TF Metals Report on Comex fraud; Maguire sees division among bullion banks


3:20p CT Friday, October 30, 2015

Dear Friend of GATA and Gold:

The TF Metals Report’s Turd Ferguson today explains again how the Comex gold futures market is fraudulent:

And London metals trader Andrew Maguire tells King World News that a split is developing among London bullion banks, as some of the banks are concluding that the paperizing scheme of bullion banking is running out of time:…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.



This is huge news: Andrew Maguire who is well versed in affairs with respect to LBMA as he is a member comments that Goldman Sachs + other cartel members are separating itself from the gold cartel, namely the bullion bankers JPMorgan and HSBC

Andrew Maguire – This Historic Event Is About To Shock The World And The Gold Market

Today whistleblower and London metals trader Andrew Maguire gave one of his most important interviews ever.  Maguire warned King World News about a stunning event that is going to shock the world and the gold market.

October 30 – (King World News)

Andrew Maguire:  “Eric , there is so much going on under the radar in the gold and silver markets. If you recall, I made a prediction that gold and silver would end the year strong and I am still a firm believer that they will…

We can see by the current stale-dated published Commitment of Traders (COT) open interest structure that gold is at a similar bearish structure as the January highs, and a lot has been made of this. However, there are differences. This time, the downside range scale is limited by strong seasonality, tight supply, rising wholesale bid interest, the FED backed into a corner, ECB QE, and the concern of more Chinese rate cuts, etc. 

But a much more important factor is flying under the radar — namely, a division between the two primary market making bullion banks, (who have vaulting operations here in London), and the rest of the collusive bullion bank cabal. This is a definite game-changer and a very big deal that will begin to unwind a 30-year collusive relationship.

A Crack In The Cabal’s Resolve

I have been hearing reliable rumors of this split since mid-June, but the LBMA conference last week exposed this crack in the cabal’s resolve to continue to work together. In order to assess the immediate impact of this split, it is best to first take a look at the cabal’s history and mechanisms, and then analyze how this split in their ranks is about to challenge the historical wash and rinse setups.

The Gold cabal was born under the wing of Robert Rubin, who ran the gold trading desk at Goldman Sachs in the 1980’s.

KWN Maguire I 10:30:2015

This is when the gold carry trade was born, which given the large interest differentials between gold and Treasuries at that time, was a slam dunk win for Western central banks looking to contain gold vs the dollar, while drawing the proceeds of the sale of large tranches of central bank leased gold flowing through the bullion banks into Treasuries. This created the synthetic markets as we see them today. The result of being subsidized through the central banks gave the green light for the bullion banks and central banks to leverage up a multi-billion dollar fractional-reserve gold position they never thought would need to be unwound.

The primary bullion banks, acting as agents for the central banks, who have had a free pass to naked short large volumes of synthetic gold and over a long period of time, became accustomed to exploiting the advantages of colluding together to create and protect mutually beneficial position concentrations in the paper gold and silver markets. In the process, they accrued an embedded naked short position that they thought could be infinitely rolled forward. This created a fractional reserve gold/silver position that directly mirrored the cash banking system, where it is assumed that not more than 10% of cash depositors at any one time would ever ask for the money they had deposited back…

Unallocated gold accounts are also deemed to be cash investments in the receiving bank, giving the gold investor no right to ever receive delivery. The bullion banks operating these fractional-reserve gold positions are geared even more aggressively than their more tightly regulated cash banking operations. These multi billon dollar unallocated gold accounts were independently verified in a Reserve Bank of India report to be leveraged at a 92/1 level, far greater than the 10/1 governing other banking operations.

When analyzing many years of positioning data in the COT report, the footprints are easy to read. And when connecting the dots through the options and OCC reports, it is well established that the two primary market making bullion banks that have vaulting operations — HSBC and JPM — have for many years primarily worked directly in synch with the four non-vaulting market-making bullion banks, who are also privileged to operate gold bank accounts with the Bank of England.

This small cabal of bullion banks operating with the blessing and insider advantages of acting as agents for Western central banks, have concentrated their mutually agreed positioning against a very diverse range of hedge funds and speculators who are easy to pick off, as they are not coordinated. The resulting action is what I refer to and is now commonly known as ‘the Wash and Rinse Cycle.’

What Is Changing Will Shock The World

So what is changing? The physical element to this synthetic open interest positioning is changing the critical point where the paper market rubber hits the physical road. In fact, the physical markets have already migrated out of the hands of these few collusive bullion banks. But with regulators now finally forced to act against a full range of gold and silver market manipulation cases, this is resulting in an exit of traditional liquidity providers. These were the banks financing the unallocated markets. Right now, critical liquidity is exiting the Loco London market, and this is unprecedented.

This is where the split is occurring.  The two primary bullion banks, who have large vaulting operations here in London, are also the primary agents for the central banks who want to keep the OTC gold trade opaque and off a proposed centrally-cleared exchange.

Synthetic Gold Market House Of Cards To Collapse

However, the aggressive and predatory bullion banks that largely infest the swap dealer category of the COT report recognize the gold market has changed and are about to split ranks and reposition more bullishly, a position they would already have if they had not accrued such large underwater proprietary positions.  The head of this pack of wolves is Goldman SachsThese banks read the changes coming and see an incentive to compete against the two primary bullion banks forced to keep this game going for as long as possible. This is a big deal because without collusive cooperation of all of the cabal, the whole synthetic gold market house of cards collapses. 

This market change is now underway. The glass is cracked and cannot be repaired. Goldman Sachs and at least ten other trading banks are breaking rank because they see the writing on the wall and are pre-positioning for a post-cash settlement. And once released from their underwater unallocated gold liabilities, they will benefit from an embedded long position in physical as well as paper gold.

No one understands the bifurcation of the capped synthetic markets and underpriced physical markets better than these trading banks. JP Morgan has already cornered the silver physical market and Goldman Sachs plans to front-run the increasingly illiquid paper gold market against its rival bullion banks. This split in the ranks will speed up…To continue listening to the incredible audio interview with London metals trader and whistleblower Andrew Maguire, where he discuses the great unwind that is going to take place in the gold and silver markets, what traders should expect next, and where gold and silver prices are headed, CLICK HERE OR ON THE IMAGE BELOW.




With all gold mines having trouble with the low price of gold/silver yet costs rising, Agnico Eagle is perhaps the best run company struggling with all the hardships thrown at them.


(courtesy seeking alpha)


Agnico-Eagle released its third-quarter results on October 28, 2015 which was followed by a conference call. Again a solid and impressive quarter.

Agnico-Eagle is delivering a strong production, thereby generating an operating cash flow of $143.7 million this quarter — in spite of a gold price at record low of $1,119/ Oz.

I recommend AEM as a buy and accumulate on any weakness.

Agnico Eagle Mines Ltd.(NYSE:AEM)

Source: Meadowbank picture taken from company website.

This article is following a preceding article on AEM published on Sept. 21, 2015, about the company update on its Mexican operations and a quick look at the 2Q’15 results.

A Quick Q3’15 Financial Snapshot:

Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014

in $ million

508.795 510.109 483.596 503.1 463.388
Gold Production

in Oz

441,124 403,678 404,210 387,538 349,273
Realized gold price

in $

1,119 1,196 1,202 1,202 1,249
Cash provided by operating activities

in $ million

143.7 71.2
Net income

$ Million

1.29 10.08 28.7 (21.3) (15.1)
Adjusted Net income

$ Million

EPS – basic 0.01 0.05 0.13 (0.10) (0.07)
Adjusted EPS 0.18
AISC (by-product)


759 864 804 954



in $ million

72.0 81.9 82.9 133.4
Cash and Cash equivalent (including restricted cash)

in $ Million

208.1 158.3 172.1 215.3 164.0
Outstanding Debt

in $ Million

1,203.3 1,180.3 1,220.1 1,322.5
Dividend per share

In $/share

0.08 0.08 0.08 0.08 0.08
Shares outstanding

in million

217.2 215.426 214.6 213.3

Available credit facilities:

The outstanding balance on the Company’s $1.2 billion credit facility was reduced from $375 million at June 30, 2015 to $350 million at September 30, 2015. This results in available credit lines of approximately $850 million, not including the $300 million accordion facility.

TB1 – Payable production per quarter and per metal:




K Oz





Q3 2015 441,124 1,037 650 1,302
Q2 2015 403,672 1,106 733 1,131
Q1 2015 404,210 1,032 936 1,167
Q4 2014 387,538 1,043 2,467 1,399
Q3 2014 349,272 830 2,225 989
Q2 2014 326,058 870 3,788 1,060
Q1 2014 366,420 890 2,060 1,554

TB2 – Breakdown of the geographical distribution of the three-year future gold production:

Canada Europe Mexico
% gold production 70 10 20

TB3 – Production and cost/cash cost per segment.

Mine Total production cost per Mine

in $

Production of gold


Cash cost

on a By-product basis


LaRonde 2Q’15 45,133 64,007 613
3Q’15 49,243 71,860 558
Lapa 2Q’15 13,656 19,450 678
3Q’15 12,279 25,668 522
Goldex 2Q’15 16,913 26,462 633
3Q’15 16,120 32,068 479
MeadowBank 2Q’15 66,888 91,276 688
3Q’15 57,404 99,425 598
Canadian Malartic 2Q’15 42,185 68,441 609
3Q’15 42,008 76,603 544
Kittila 2Q’15 30,777 41,986 776
3Q’15 31,116 46,455 639
Pinos Altos 2Q’15 29,768 50,647 384
3Q’15 26,845 47,725 392
Creston Mascota 2Q’15 7,501 15,606 402
3Q’15 6,101 12,716 436
La India 2Q’15 10,791 25,803 410
3Q’15 13,468 28,604 436
TOTAL 3Q’2015 254,584 441,124 Oz $536

AISC $759

TOTAL 2Q’2015 263,612 403,672 Oz
TOTAL 1Q’2015 247,280 404,210 Oz

Revised 2015 Guidance – Production Increased and Costs Lowered — from the press release.

As a result of strong operational performance in the third quarter of 2015, production guidance for 2015 has been increased to approximately1.65 million ounces of gold (previously 1.6 million ounces) with total cash costs on a by-product basis of approximately $590 to $610 per ounce (previously $600 to $620) and AISC of approximately $840 to $860 per ounce (previously $870 to $890).

Commentary:Agnico-Eagle released its third-quarter results on October 28, 2015 which was followed by a conference call. Again a solid and impressive quarter.

I will not comment again on the results that I have displayed in detail above. Just one simple conclusion is that the numbers were impressive, and covering every segment. Production increased by 9.3% quarter over quarter, while AISC went down to $759/ Oz.

Production has been strong in the Abitibi, particularly for the Canadian Malartic, and the company decided to increase production guidance to another50K Oz with an AISC at $850 for 2015, despite some lower mining grade in Meadowbank mine.

The two projects that are being developed now, are the Barqueno project in Mexico and the Nunavut at Amaruq (Satellite of Meadowbank operations).

In short, Agnico-Eagle is a Canadian gold miner with a clear future potential, that delivers a steady production at low costs.

Unlike, Barrick Gold (NYSE:ABX) for example, that I covered yesterday, which seems “too big” and cumbersome with a large debt, the AEM shareholders can grasp, in a few minutes, the entire AEM mining model and its basic strategy.

It is a very important detail for an investor like me, who wants to invest in a gold mining industry, and add a few strong leaders in his portfolio, with a time horizon of a few years.

Agnico-Eagle is delivering a strong production — See Tab3 — and even increased its production guidance for 2015 again, thereby generating an operating cash flow of $143.7 million this quarter — in spite of a gold price at record low of $1,119/ Oz. This is nearly a double year over year, and while paying a 1.1% per year dividend. The debt of $1.2 billion is also very manageable.

Of course, nothing is perfect, especially when we are talking about gold, and investment in gold has not been the best return on investment (‘ROI’) lately, and for the past two years as a matter of fact. The jury is still out for 2016, and analysts seem divided on the direction of the gold price.

However, it is very important to have a “presence” in the gold sector, through a good quality gold miners like AEM or Newmont Mining (NYSE:NEM) that Icovered yesterday, because the market is essentially cyclical, which means that this segment in your portfolio, will turn to profit, in due time.

Thus, a good balanced portfolio with a long-term perspective is paramount, and to build-up such a winner requires to recognize the true leaders, when they are still cheap and not so appealing.

If we look at the 1-year Chart, we can see what I mean.


AEM is a well managed gold miner that should be part of your long portfolio. I recommend AEM as a buy and accumulate on any weakness.

(courtesy Mike Kosares/GATA)


Mike Kosares: You will hear the roar of the printing presses from Mars


1:15p CT Saturday, October 31, 2015

Dear Friend of GATA and Gold:

Gold prices and bond yields, USAGold’s Mike Kosares writes today, are “telling us that the global economy is in the grip of disinflation and perhaps on the verge of going over the cliff — to a full-blown deflation.” Kosares agrees with the analysis who says that, as central banks respond, “you will hear the roar of the printing presses from Mars.” Kosares’ commentary is headlined just that — “You Will Hear the Roar of the Printing Presses from Mars” — and it’s posted at USAGold’s Internet site here:…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.



(courtesy Chris Powell/GATA)


Martin Armstrong is too brilliant to understand that time is money


12:14a CT Sunday, November 1, 2015

Dear Friend of GATA and Gold:

Claiming breathtaking omniscience with his latest commentary, the economist and market analyst Martin Armstrong asserts that market manipulation is nothing to worry about and that complaints of manipulation of the gold market are nonsense.

Armstrong’s commentary —

— is headlined “Market Manipulations: The Greatest Scam of All Time,” that headline being his first claim to omniscience, a claim to comprehensive knowledge of every scam in history:

He elaborates: “Throughout history, there has never been a market manipulated to alter its long-term trend — period.”

Armstrong thereby claims comprehensive knowledge of every market going back to caveman times when Og of the Rock People became the first commodity trader, offering to sell his tribe 10 pterodactyl feathers he didn’t own in the hope that this would intimidate Zug to reduce the price of the feather he was trying to exchange for a dozen mastodon-bone fish hooks, Og having only five fish hooks to trade.Armstrong’s knowledge may be especially impressive because no record of Og’s trade was kept. But Armstrong claims to know the history of all markets for thousands of years before records were kept.

Armstrong’s commentary then descends to a lot of chest thumping about how two decades ago he was right about the silver market when some other bigshots were wrong. Apparently this assertion too is supposed to be dispositive about everything in history.

Armstrong’s mighty conclusion: “There is no secret plot to keep gold down to pretend inflation is lower.”

Armstrong thereby claims to know the minds of every market participant in the world, from central bankers right down to the Chinese “aunties” trying to put a little metal away for the grandchildren.

In the old days an assertion like the ones Armstrong makes was called an “ipse dixit,” Latin for “he himself said it,” as if the speaker presumed that his authority would be taken for granted without the slightest need for evidence. Armstrong may be a prodigy but he didn’t invent the swelled head. He’s just wearing one.

One doesn’t need to be omniscient like Armstrong to note the flaw in his premise: “Throughout history, there has never been a market manipulated to alter its long-term trend — period.”

That is, for starters, Armstrong fails to define his terms. For what is a “long-term trend” and what is a “short-term” one? And even if Armstrong defined those terms, would those definitions necessary hold for other people?

Armstrong acknowledges the possibility of short-term market manipulations contrary to long-term trends. He cites Soviet communism, a vast market manipulation that destroyed markets altogether. He might not deny that the U.S. government held the gold price at $20.67 and then $35 an ounce for many years, preventing any market in gold from developing.

Yes, market pressures helped bust Soviet communism as well as the U.S. dollar’s gold peg and a lot of other market manipulations, and the prices that followed might be called vindication of the “long-term trend.” But vindication for what and for whom?

For as Keynes noted, thinking of people like Armstrong: “The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can tell us only that when the storm is past the ocean is flat again.”

After all, while Armstrong may consider the history of the Soviet Union to have been short-term, it nevertheless encompassed 70 years and damaged or ruined millions of lives. Even a market manipulation of much shorter duration — a few weeks or months, or just a few days — can cheat people substantially and do great harm.

Transcending space and time, Armstrong is too brilliant to understand that for mere mortals time is money. His empty pontifications evoke Mark Twain: “The less a man knows, the bigger the noise he makes and the higher the salary he commands.”

Armstrong’s analysis of the gold market — indeed, given the gold market’s connection to other major markets, his analysis of all markets — would be more useful if it addressed these questions:

— Are central banks in the gold market surreptitiously or not?

— If central banks are in the gold market surreptitiously, is it just for fun — for example, to see which central bank’s trading desk can make the most money by cheating the most investors — or is it for policy purposes?

— If central banks are in the gold market for policy purposes, are these the traditional purposes of defeating a potentially competitive world reserve currency, or have these purposes expanded?

— If central banks, creators of infinite money, are surreptitiously trading a market, how can it be considered a market at all, and how can any country or the world ever enjoy a market economy again?

Of course just a week ago another central banker actually volunteered that certain central banks are intervening in the gold market surreptitiously even as they are trying to increase their gold reserves, the intervention apparently meant to help keep the price down to facilitate their acquisition of gold:

More documentation responsive to these questions can be found in GATA’s archive here:

A summary of that documentation and the history behind it is in GATA’s archive here:

In his omniscience Armstrong may dismiss this stuff as being from another universe, but those who live in that universe may find it useful.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.




Ronan Manly and I both agree, that Venezuela has lost all of its gold reserves.

(courtesy Ronan Manley/


Ronan Manly: Venezuela says adios to its gold reserves


12:57a CT Sunday, November 1, 2015

Dear Friend of GATA and Gold:

Venezuela lately has probably sold, leased, swapped, or otherwise encumbered more gold than reported, gold researcher Ronan Manly writes today after a painstaking review of the records of the country’s central bank.

Venezuela’s gold reserves, Manly writes, fell by about 61 tonnes from February to April even though the International Monetary Fund and World Gold Council did not note the decline. This decline, Manly writes, was distinct from the gold swap Venezuela was reported to be undertaking with Citigroup and might have been a sale to other investment banks or even to China.

Shipping documents at the Caracas airport, Manly adds, suggest strongly that more gold from the central bank’s vaults was flown to Europe in July.

Manly concludes that Venezuela’s gold reserves may be substantially lower than analysts believe are available to help service the country’s external debt into 2016 and indeed may already be oversubscribed.

Manly’s analysis is headlined “Venezuela Says Adios to Her Gold Reserves” and it’s posted at the Bullion Star blog here:…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.



(courtesy Egon von Greyerz/GATA)

Central banks’ only policy is to inflate money supply, von Greyerz tells KWN


7:50p ET Sunday, November 1, 2015

Dear Friend of GATA and Gold:

The stock market is dictating Federal Reserve policy, gold fund manager Egon von Greyerz tells King World News today, and as a result the Fed and other central banks really have no policy at all except to keep expanding the money supply to support the markets while using derivatives to suppress the gold price. He credits GATA for producing “innumerable pieces of proof” of gold price suppression by central banks. An excerpt from von Greyerz’s interview is posted at the KWN blog here:…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.



And now your overnight MONDAY morning trading in bourses, currencies, and interest rates from Europe and Asia:

1 Chinese yuan vs USA dollar/yuan falls , this  time at  6.3365 Shanghai bourse: in the red, hang sang:red 

2 Nikkei down 399.65 or 2.08%

3. Europe stocks mostly in the green   /USA dollar index up to 96.87/Euro up to 1.1013

3b Japan 10 year bond yield: rises to .316% !!!!(Japan buying 100% of bond issuance)/Japanese yen vs usa cross now at 120.64

3c Nikkei now just above 18,000

3d USA/Yen rate now just above the important 120 barrier this morning

3e WTI: 45.80  and Brent:   48.73

3f Gold down  /Yen down

3gJapan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil down for WTI and down for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund falls to  .516 per cent. German bunds in negative yields from 6 years out

 Greece  sees its 2 year rate rises  to 8.91%/:  still expect continual bank runs on Greek banks 

3j Greek 10 year bond yield falls to  : 7.91% (yield curve inverted)  

3k Gold at $1137.60 /silver $15.42 (8:00 am est)

3l USA vs Russian rouble; (Russian rouble down 3/10 in  roubles/dollar) 64.25

3m oil into the 45 dollar handle for WTI and 48 handle for Brent/ China purchases huge supplies from Saudi Arabia

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar.

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9865 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0867 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p Britain’s serious fraud squad investigating the Bank of England on criminal charges/

3r the 6 year German bund now  in negative territory with the 10 year rises to  +.516%/German 6 year rate negative%!!!

3s The ELA lowers to  82.4 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 2.17% early this morning. Thirty year rate below 3% at 2.95% / yield curve flatten/foreshadowing recession.

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

(courtesy Jim Reid/Bloomberg/Deutsche bank/zero hedge)



Futures Rebound From Overnight Lows On Stronger European Manufacturing Surveys, Dovish ECB

On a day full of Manufacturing/PMI surveys from around the globe, the numbers everyone was looking at came out of China, where first the official, NBS PMI data disappointed after missing Mfg PMI expectations (3rd month in a row of contraction), with the Non-mfg PMI sliding to the lowest since 2008, however this was promptly “corrected” after the other Caixin manufacturing PMI soared to 48.3 in October from 47.2 in September – the biggest monthly rise of 2015 – and far better than the median estimate of 47.6, once again leading to the usual questions about China’s Schrodinger economy, first defined here, which is continues to expand and contract at the same time.

Unrelated to China’s PMI, was the biggest plunge in the onshore Yuan which after soaring the most since 2005 on Friday (followed by the appropriate surge in the fix overnight) proceeded to tumble by nearly 0.5%, the biggest plunge since the Yuan devaluation, on even more PBOC intervention. This followed a statement that China’s central bank is finalizing revisions to its foreign-exchange rules that would loosen some capital controls while preserving its ability to intervene in times of volatility, according to people familiar with the matter. In other words, keep its SDR cake while eating “malicious short sellers” too and intervening at will.

Certainly unrelated to China’s PMI, but even more market moving, was overnight news that Chinese authorities had arrested China’s “Carl Icahn”, Xu Xiang on insider trading charges, head of the $1.5 billion Zexi Investment fund (with concurrent news from both China National Radio and Xinhua that his partner Wu Shuang had been shot by local police after attempting to flee from arrest). Here are the highlights from Bloomberg’s report:

Shanghai police raided hedge fund Zexi Investment on Sunday, taking away computers and other materials, according to a person familiar with the matter, in the latest attempt by Chinese authorities to crack down on strategies blamed for exacerbating a $5 trillion stock-market rout.


Xu Xiang, the general manager of top-performing Zexi, was detained on charges including insider trading and stock manipulation, the official Xinhua news agency reported. Two executives at Jiangsu-based Yishidun International Trading and the technical director at Shanghai-based Huaxin Futures were arrested after a police investigation showed they made 2 billion yuan ($316 million) in “illegal profit”, Xinhua reported separately, citing the Ministry of Public Security. Agricultural Bank of China Ltd. President Zhang Yun was taken away to assist authorities with an investigation, people familiar with the matter said on Monday, who didn’t give details.


Highlighting the tense environment sparked by the probes, Chinese social media was set abuzz Monday morning by an unconfirmed report of a man associated with the insider trading probe who was shot and killed by police while trying to escape apprehension. The report was retracted less than an hour after being posted to various websites, including that of China National Radio. A person at China National Radio’s news department, who refused to give their name, said the police had informed the broadcaster that the information was untrue.

One easy way to confirm whether or not Wu is alive: present him to the public. Somehow we doubt this will happen.

Continuing the overnight news, following China’s bad/good PMI data, it was Europe’s turn where at least the manufacturing surveys are improving, if not the economy, which sadly is the reason why Draghi is preparing to unleash even more QE. Specifically, the Final October Manufacturing PMI printed 52.3, vs Ex. 52.0 and a Previous print of 52.0.

Here was Goldman’s rundown:

BOTTOM LINE: The final Euro area manufacturing PMI came in at 52.3 in October, 0.3pt above the flash estimate. With this revision, the Euro area manufacturing PMI gained 0.3pt on the month. On a country basis, the German manufacturing PMI edged down on the month by 0.2pt, while the Spanish PMI fell by 0.4pt. The French PMI was flat, and the Italian PMI experienced a robust gain of 1.4pt.

  1. The final Euro area manufacturing PMI came in at 52.3 in October, 0.3pt above the flash. Relative to the flash, the German manufacturing PMI was revised up (from 51.6 to 52.1), whilst the French reading was revised down marginally (from 50.7 to 50.6). Between September and October, the Euro area manufacturing PMI rose by 0.3pt (Exhibit 1).
  2. The PMI breakdown across subcomponents in October was mixed. Manufacturing output rose (+0.2pt to 53.6), whilst employment fell (-0.5pt to 51.1). The order-to-stock difference fell marginally by 0.4pt in October, reflecting a large increase in the stocks of finished goods.
  3. On a country basis, following the upward revision, the German manufacturing PMI now only fell slightly on the month (from 52.3 to 52.1). The Spanish PMI also nudged down in October (from 51.7 to 51.3). The French print was flat on the month (50.6), whilst the Italian value increased robustly (52.7 to 54.1).
  4. Outside the ‘big 4’, the manufacturing PMI in Greece rose by 4.0pt (43.3 to 47.3), while the Irish figure edged down from 53.8 to 53.6.

Additionally, UK Mfg PMI also unexpectedly surging from 51.8 to a print of 55.5, above expectations of 51.3 boosted sentiment as well.

But perhaps the biggest reason why both Europe and the US wiped out all overnight losses in equities and futures was the latest baffle with BS moment out of Europe, where following this weekend’s unexpectedly hawkish interview by Mario Draghi to Il Sole, it was again Ewald Nowotny’s turn to bring the doves home, after saying the ECB’s 2% inflation target “clearly missed,” “therefore, the ECB has to act,” according to interview with Austria’s Kleine Zeitung. He then proceeded to engage in an economist’s favorite activity: stating what can not proven, namely that “without QE we’d be stuck in much bigger difficulties.” Well, one can just as easily state the opposite and have just the same “accuracy.”

A quick run through markets starts in Asia, where stocks traded mostly lower following the weak close on Wall St. coupled with discouraging official Chinese PMI figures over the weekend where manufacturing PMI (49.8 vs. Exp. 50.0) was in contractionary territory for a 3rd month, while services PMI (53.1 vs. Prey. 53.4) was at its lowest since 2008. This pressured Chinese markets from the open, however Shanghai Comp. (-1.3%). then recovered after China Caixin manufacturing PMI (48.3 vs. Exp. 47.6) beat expectations, although Chinese equities took another leg lower heading into the European open following news on the Zexi Investment crackdown.

Nikkei 225 (-2.1%) underperformed to trade back below 19,000 as JPY strength weighed on exporters, while ASX 200 (-1.4%) was pressured by financials after big-4 bank Westpac’s disappointing update. 10yr JGBs traded lower amid lack of buying by the BoJ ahead of tomorrow’s Culture day public holiday.

Despite opening lower on the back of another round of weak macroeconomic data from China, stocks in Europe staged a dramatic turnaround following dovish comments by ECB’s Nowotny who said that the central bank has to act given that inflation target is being missed. Bunds have failed to benefit from the above and instead traded lower amid FT reports over the weekend which suggested that China are selling some of its holdings of German government bonds to help assist the ECB’s QE programme. Also, somewhat non-committal comments by ECB’s Draghi who suggested that it is too early to pass judgement on depo-rate cut resulted in partial unwind of aggressive flattening of the Euribor curve which took place following very dovish press conference by Draghi last month.

In FX, GBP outperformed its peers, with the major pair rising above the 100DMA line following the release of much better than expected UK Manufacturing PMI report, which also comes ahead of the eagerly awaited MPC policy decision and the latest Quarterly Inflation Report. Elsewhere, USD/JPY recovered overnight losses and edged into positive territory to test the key 200DMA line, aided by higher US bond yields that’s as USTs were dragged lower by German Bunds. As noted previously, the Turkish Lira has exploded overnight on news that Erdogan’s rule is assured for years to come.

The release of yet another round of weak macroeconomic data from China meant that energy and metals markets remained under pressure in Europe this morning. Furthermore, reports that Russian October oil output has risen to record of 10.78mbpd, as well as reports that Iran it to seek 500kbpd output rise at OPEC meeting exacerbated the downside bias by WTI and Brent crude prices.

Top Weekend News:

  • Erdogan Party Sweeps Back to Power in Surprise Turkey Win: AK Party sweeps back into office, defying polls, strengthening President Recep Tayyip Erdogan’s 13-year rule following divisive campaign.
  • Russian Plane’s Midair Breakup a Puzzle in Modern Jet Era: Wreckage found in area ~8km long, 4km wide, suggesting aircraft broke up at high altitude.
  • Macau Casino Shares Advance as Gambling Revenue Slump Eased: Gross gaming revenue fell 28% in Oct., decline was at slowest since Jan.
  • ‘Martian’ Holds at No. 1 at Box Office Over Slow Halloween: Film generated $11.4m at U.S., Canadian theaters; Weinstein Co.’s “Burnt,” with Bradley Cooper, landed in fifth, while Warner Bros.’ “Our Brand Is Crisis,” with Sandra Bullock, opened in eighth place; Paramount’s “Scouts Guide to the Zombie Apocalypse” was 12th.
  • Citron’s Left Won’t Have ‘Earth-Shattering’ News on Valeant: WSJ: Short seller Andrew Left to issue new Valeant report today
  • Pfizer, Allergan Said to Aim to Agree on Deal by Thanksgiving: Cos. keen on friendly deal, hope to agree on the terms of takeover, incl. who will lead combined co., by Thanksgiving: people familiar
  • Nissan Raises FY Profit Forecast as Demand Rises in U.S.: Net income may rise to JPY535bin 12 months through March vs JPY457.6b year ago.
  • Chipotle Shuts Restaurants in Seattle, Portland on Health Risk: Co. closed 43 restaurants in Seattle, Portland, as health officials investigate E. coli outbreak
  • China Factory Gauge Signals Contraction Continued a Third Month: Manufacturing PMI remained at 49.8 in Oct., below ests.

Market Wrap

  • S&P 500 futures up 0.1% to 2076
  • Stoxx 600 up 0.2% to 376
  • MSCI Asia Pacific down 1.2% to 133
  • US 10-yr yield up 3bps to 2.17%
  • Dollar Index down 0.09% to 96.86
  • WTI Crude futures down 1.5% to $45.88
  • Brent Futures down 1.5% to $48.84
  • Gold spot down 0.4% to $1,138
  • Silver spot down 0.9% to $15.41

Bulletin Headline Summary From RanSquawk and Bloomberg

  • Stocks in Europe staged a dramatic turnaround following dovish comments by ECB’s Nowotny who said that the central bank has to act given that inflation target is being missed
  • Bunds have failed to benefit from further dovish rhetoric and instead traded lower amid FT reports over the weekend which suggested that China are selling some of its holdings of German government bonds to help assist the ECB’s QE programme
  • Finally, going forward market participants will get to digest the release of the latest US manufacturing PMI, manufacturing ISM reports, as well as comments by Fed’s Williams.
  • Treasuries drop in overnight trading as U.K manufacturing growth accelerated and sends equities higher; this week’s data will be dominated by nonfarm payroll release on Friday.
  • Manufacturing in the euro area unexpectedly accelerated in October as German companies fared better than initially reported, according to Markit Economics
  • The odds that the Federal Reserve will increase interest rates before year-end climbed to 50%, suggesting Treasuries are poised to extend October’s biggest monthly loss since June
  • A 16-month oil rout and growing talk of recessionary risks have led economists tracking monetary policy in Norway to wonder whether zero — or even negative — rates are in store for western Europe’s biggest crude producer
  • Asian hedge-fund managers are putting more money into their funds, seeking to project confidence after the industry’s worst performance streak since the 2008 financial crisis spurred redemptions
  • China is signaling that it’s not letting record outflows this year deter capital-market reforms; changes to foreign- exchange rules will loosen some capital controls while preserving its ability to intervene in times of volatility
  • Shanghai police raided hedge fund Zexi Investment on Sunday, according to a person familiar with the matter, in the latest attempt by Chinese authorities to crack down on strategies blamed for exacerbating a $5t stock- market rout
  • German Chancellor Angela Merkel faces further coalition discord over the refugee crisis after weekend talks with fellow party leaders failed to identify a common government stance on tackling the biggest influx of migrants since World War II
  • The Royals beat the Mets with a come-from-behind 7-2 victory in 12 innings to give them their first championship since 1985
  • Sovereign 10Y bond yields mixed, with Greek 10Y yield 12bp higher. Asian and European stocks mixed; U.S. equity- index futures rise. Crude oil, gold and copper fall


DB’s Jim Reid completes the overnight wrap

Before we get to the weekend’s China numbers its worth highlighting that the strong October kicked into life with the 57 point S&P 500 turnaround on October 2nd just a few minutes after the weak payroll number. So it’s interesting that the end of this week sees the latest instalment in this random number generator of a series. The risk rally took a pause for breath over the last few days of last week not helped by a hawkish FOMC. So lots to play for in the data.

Looking now at the China data from the weekend and this morning. The official manufacturing PMI number for October has failed to show signs of a pickup in the sector, holding steady at 49.8 after expectations for a rise to 50.0. That was the third straight month of contraction in the sector and while the new orders component nudged up, there was some softness to be seen in the employment index in particular. Meanwhile the official non-manufacturing PMI declined three-tenths last month to 53.1, the lowest print now since December 2008.

There was a hint of more positive news in this morning’s Caixin manufacturing PMI. Although the 48.3 reading for last month supported the evidence from the weekend that the sector is still struggling, the reading was up 1.1pts from September and ahead of expectations of 47.6. DB’s Zhiwei Zhang notes that the rise in the non-official reading was the biggest this year. He reports that this rise, combined with some of the strength in key subcomponents (namely output and new orders) is consistent with his expectation that economic activities are picking up in Q4. Zhiwei reiterates his view that Q4 GDP will rebound to 7.2% from 6.9% in Q3.

There looks set to continue to be a reasonable amount of focus on China this week with the remaining Caixin PMI numbers due on Wednesday, foreign reserves data on Saturday and trade data on Sunday. On top of this we should also hear about the IMF’s decision on including the Chinese Yuan in its SDR basket with a decision due sometime early this month (with an exact date yet to be announced). Our Asia FX colleagues think that the likelihood of inclusion has increased in recent weeks reflecting better fulfillment of several of the SDR technical conditionalities and strong reporting from the Europe and the US during President Xi’s visit.

It’s been a volatile start to markets in China this morning following the latest data. The Shanghai Comp initially opened down -1.6%, although the slight upside surprise in the non-official PMI data has seen the index pare almost all of those losses to currently sit at -0.14%. It’s been a similar start also for the CSI 300 (-0.11%) although the Shenzhen (+1.03%) has rallied back strongly. Elsewhere it’s been a pretty weak start for bourses in Asia. The Nikkei is -1.94% after Japan’s final Nikkei manufacturing PMI nudged down one-tenth to 52.4. The Hang Seng (-0.65%) and ASX (-1.41%) have also seen losses. Asia credit indices are around a basis point wider while some of the more interesting moves have been in FX where the Chinese Yuan was set 0.54% stronger versus the USD this morning, the most the fix has been strengthened since 2005. This follows a 0.62% gain for the Yuan on Friday after the PBoC said it was to loosen capital controls around Yuan convertibility.

Turkey is also attracting plenty of headlines this morning following the parliamentary elections yesterday in which the ruling AK party gained what was seen as a surprise victory after taking about 49% of the total votes and a seat majority in parliament, having lost support in polls just five-months ago. The result may come as relief after previous polls had pointed towards the possibility of a hung parliament and heightened uncertainty. The Turkish Lira has jumped nearly 3% against the USD this morning in early trading – the most since January 2014.

Also of note from the weekend were comments from ECB President Draghi which keeps open the argument for more ECB stimulus as soon as next month. In an interview published in Italian Press Il Sole 24 Ore on Saturday, Draghi was quoted as saying that ‘if we are convinced that our medium-term inflation target is at risk, we will take the necessary actions’ and that ‘we will see whether a further stimulus necessary’. With expectations rising that another cut in the deposit rate might be necessary as soon as December, Draghi said that it is ‘too early’ to make that judgment, but that ‘the interest rate on deposits could be one of the instruments that we use again’.
These comments came a day after US equity markets faded into the close on Friday, although not enough to stop the S&P 500 posting its fifth consecutive weekly gain. The index finished -0.48% on Friday, while there were similar declines for the Dow (-0.52%) and Nasdaq (-0.40%) after stocks softened up in the final half hour of the US session. It had previously been a much more mixed session in Europe with the Stoxx 600 (-0.06%) finishing more or less unchanged, but the Dax (+0.46%) having a better day. Moves were pretty muted in credit but the bigger story continues to be one of a buoyant US primary market. Last week saw nearly $37bn price in US IG, the eleventh busiest week YTD but the $105bn priced in the month of October the busiest October on record. YTD volumes are actually now sitting at about the same as the total for 2014 and there looks set to be no let up with another $25-$30bn expected to come to market this week.

Earnings season continues with another 20 S&P 500 companies reporting on Friday. The overall trend was generally disappointing relative to what we’ve seen so far with just 13 (65%) beating earnings expectations (and 2 matching) and 9 (45%) beating revenue expectations. That was despite some better than expected numbers from the bellwether oil names on Friday after Chevron and Exxon Mobil exceeded analyst expectations, although the former in particular announcing that it expects to cut up to 11% of its workforce as well as scale back production guidance. With that the overall numbers now with 341 S&P 500 companies having now reported shows 73% have beat earnings expectations (similar to the 75% and 73% in the previous two quarters this year) but just 44% have beat revenue expectations (compared to 49% and 48%). Digging deeper, DB’s David Bianco notes that YoY EPS growth so far is standing at +1.7%, although this rises to +9.6% when you strip out the energy names, but equally declines to -1.7% excluding the financials stocks. The obvious weakness has been in revenues however where YoY growth is -5.8%. Again energy stocks have been a large driver of this, with the YoY growth rate actually +0.6% excluding these names.

In Europe meanwhile we’ve now seen quarterly reports from 213 Stoxx 600 companies. The trend so far continues to be one of notable weakness relative to prior periods with just 47% beating earnings expectations and 44% beating revenue expectations. That compares to 66% and 61% respectively in Q2 and 72% and 57% in Q1.

Friday’s dataflow in the US was a fairly mixed bag. It was hard to get too excited about the inflation numbers. The PCE core for September rose a less than expected +0.1% mom (vs. +0.2% expected) during the month, with the YoY staying put at +1.3%. The PCE deflator matched expectations at -0.1% mom, with the YoY rate nudging down one-tenth to +0.2% to match the lowest reading this year. The Q3 employment cost index also offered no surprises relative to expectations after printing at +0.6% qoq, which was up from a particularly soft Q2 (+0.2%). Meanwhile the final University of Michigan consumer sentiment reading for October revealed a 2.1pt downward revision to 90.0. Of more interest was the downgrade in 5-10y inflation expectations to 2.5% (from 2.6%) which matched the lowest level since the data series started in 1979. That helped take US Treasury yields lower, the benchmark 10y closing 3bps down at 2.143% while the USD softened with the Dollar index falling -0.35%.

Elsewhere, there was an impressive bounce-back in the October Chicago PMI which rebounded 7.5pts to 56.2 (vs. 49.5 expected) and to the highest level since January this year. The October ISM Milwaukee print was supportive too, rising 7pts to 46.7 (vs. 44 expected). Our US colleagues still expect this afternoon’s ISM manufacturing reading to print sub-50 however, consistent with the contraction in the manufacturing sector.

There was also some chatter out of Fed officials on Friday. The San Francisco Fed President Williams said he needs to see more economic data in the coming weeks to decide whether or not a December hike is warranted, although he did acknowledge that the mentioning of December in the minutes was meant as a signal that its ‘very much a live meeting’. Richmond Fed President Lacker confirmed that he voted against the FOMC’s decision to hold rates in October, noting that rates should be higher in his eyes given ‘the steady growth in output and household spending that we have been observing and expect to continue’. Finally the Kansas City Fed President George, while giving little away on her view of the potential for a December move, said that recent jobs and housing market improvement should ‘continue to see optimism on the part of consumers’ and that economic growth this year should largely keep pace with its longer-term trend.

Prior to this in Europe on Friday, the latest Euro area CPI estimate for October revealed a modest pickup as expected to 0.0% yoy, up one-tenth of a percent from September. There was a similar edge up for the core to +1.0% yoy, while the latest unemployment rate reading for the Euro area in September revealed an improvement to 10.8% from an already downwardly revised 10.9% in August. German retail sales for September disappointed (0.0% mom vs. +0.4% expected) as did the latest consumer spending report out of France (0.0% mom vs. +0.3% expected).



Let us begin….
Last night, 9:30 pm Sunday night, Monday morning Shanghai time.  Japan Nikkei falters and Shanghai drops.  Initial fix on yuan higher but then immediately the yuan falls in value.
(courtesy zero hedge)

PBOC Fixes Chinese Yuan Higher By 0.54%, Most Since 2005

On Friday morning, after the biggest surge in the onshore Yuan in a decade, we explained it as follows: “capital controls are to some extent counterintuitive. That is, the stricter the capital controls, the more people want to move their money out of the country. Here’s how we put it last month: “What better way to spark a capital exodus than with very vocal, and very effective capital controls. Just look at Greece.”

Indeed, China will likely need to completely liberalize the capital account in the coming years in order to pacify the IMF which is poised to throw Beijing a bone and grant its RMB SDR bid. Inclusion could lead to some $500 billion in reserve demand.


That helps to explain why overnight, the yuan soared the most in a decade after Chinamoved to loosen capital controls with a trial program in the Shanghai free trade zone that would allow domestic individuals to directly buy overseas assets. The move marks another step towards capital account convertibility, thus bolstering Beijing’s bid for yuan internationalization.

Ironically, this did absolutely nothing to ease the local population’s concerns that capital outflows are accelerating, and certainly did nothing at all to help the Chinese export economy, which as we saw from the overnight PMI numbers, deteriorated once more to new cycle lows.


Fast forward to today when Westpac strategist Sean Callow said that the Froday jump in yuan’ spot rate on Friday and weaker dollar since last week’s close could mean largest daily gain in yuan fixing in several years, adding that the obvious policy priority for stronger yuan essentially sidelines fixing models for time being.

Sure enough, as per the fixing limits established as part of the August 11 Yuan devaluation, moments ago the PBOC announced that it had set the Yuan at a USDCNY fixing of 6.3154, a strengthening of a massive 0.54% – the most since 2005 – following the manic end of trading PBOC intervention on Friday that sent the Yuan soaring some 300 pips from 6.3475 to 6.3175.


So while the Chinese capital outflow is accelerating with every passing day, and which may now be best seen in the daily surge in the price of Bitcoin which has become a preferred means of circumventing China’s strengthened capital controls…


… China is well on its way to not only filling the entire devaluation gap, but slamming its export industries with an increasingly stronger currency, and thus assuring that any stabilization in the Chinese economy is promptly wiped away.



Nikkei falters badly last night but Turkish lira advances on Erodgan’s election victory

(courtesy zero hedge)


US, Japanese Stocks Extend Losses; Turkish Lira Soars Most In 7 Years As Gold Mini-Flash-Crashes

Despite the world seemingly exuberant at Turkey’s fraudelection, sparking the biggest rally in the Lira since Nov 2008(confirming once again that “markets love totalitarian governments,”) it appears the centrally-planned machinations of the US equity markets are not living up to their promises of wealth for all (and rate-hikes don’t matter). US and Japanese equity futures are opening notably lower, erasing all of the post-Fed exuberance with Dow Futs down over 200 points from pre-BoJ hope highs. Finally, gold futures were hammered lower at the Asia open (on heavy volume) only to rip back to practically unchanged.


Lira loves the ‘fix’…


Biggest daily jump since Lehman…


Someone decided the thinly-traded pre-open markets on a Sunday night was an opportune time to flush 10s of thousands of ounce of paper gold (around $228 million notional) into the market…


And maybe higher rates are bad after all…


Japanese stocks are tumbling


As the world, contrary to a surge in pent up expectations that China is finally fine, realize that it isn’t following this weekend’s miss in both the Manufacturing PMI, and slide in the non-manufacturing PMi to the lowest level since 2008.


Finally, was the hawkish Fed hawkish not just to punk another iteration of Eurodollar/FF traders, but because its FRB/US model actually believes that there is no more slack in the economy and a December rate hike is imminent as reported earlier?

Sunday afternoon release:
China’s mfg PMI again came in below 50 at 49.8 showing contraction.
The service sector pMI fell from 53.5 down to 53.1 and still in the expansion phase:
(courtesy zero hedge)

China’s Manufacturing Misses; Nonmanufacturing Worst Since 2008 Despite Unprecedented $1 Trillion “Debt Injection”

The most anticipated economic release over the weekend was the early glimpse into China’s manufacturing and non-manufacturing sectors via the two key PMI surveys released by China’s National Bureau of Statistics, to get a sense if the slowdown across China is stabilizing or, as some have suggested, rebounding. It did not: overnight the NBS reported that the manufacturing PMI remained unchanged in October at 49.8 missing consensus estimates of a modest rebound to 50.0, its third consecutive month in contraction territory.


As for the non-Mfg PMI a barometer of services and construction, while still in expansion territory (now that China is officially attempting to transition to a service economy), it fell to 53.1 from 53.4 in September, the weakest since December 2008.

Despite the clearly disappointing data, the spin was immediate: “The manufacturing sector is still contracting, though stabilizing,” and the report indicates economic momentum remains sluggish, Liu Ligang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong told Bloomberg. “We still believe the Chinese economy will experience modest rebound supported by faster infrastructure investment in November and December.”

A more accurate take would be to say that China’s continued monetary easing hasn’t yet boosted smaller businesses as much as their larger, state-owned counterparts, which are able to borrow at reduced rates. Perhaps it won’t: after all across the Developed World, ongoing QE, ZIRP and NIRP have now reached their point of diminishing returns (something even Mario Draghi admitted), so it just may be the case that ongoing easing by China will merely accelerate the exporting of deflation (and perpetuating the domestic misallocation of capital) in a world where currency wars are all the rage.

“Big companies are stabilizing, while smaller ones continue to perform below the contraction-expansion line,” Zhao Qinghe, a senior statistician at NBS, wrote in a statement interpreting the data on Sunday. “The percentage of small companies facing a financial strain is considerably higher than that of bigger companies.”

The NBS statistician forgot to add that in China virtually every “bigger company” is deemed too big to fail, as confirmed by the recent spike in corporate debt default bailouts by the Politburo. Because for all its posturing, China’s vocal forray into deleveraging from 2013 is now nothing but a fond memory.

Reading across the details of the PMI report, showed a pickup in the activities of the construction sector. The reading of new construction orders jumped by 5.5 percentage points to 55.1, signaling demand recovering, according to the NBS statement. Perhaps China has once again managed to reignite is housing bubble, which had burst since early 2014, and where for 17 consecutive months housing prices in more than half of China’s cities had declined. If so, expect the PBOC to care far less how the SHCOMP does over the next year as its primary goal, to rekindle the most important asset bubble for China, the one where 70% of China’s wealth is kept, i.e., housing, has been achieved for now.

But while housing may be rebounding, trade isn’t – new export orders showed declines in both PMI gauges, indicating the nation’s exporters are still challenged as they enter the final quarter of the year.

What was most troubling, however, was the ongoing deceleration in China’s employment market. According to Bloomberg, the employment gauges of both manufacturing and non-manufacturing sectors remained mired in contraction zone, Sunday’s report showed. China’s survey-based unemployment rate picked up slightly to around 5.2 percent in September, while a ratio of job supply and demand rose in the third quarter.


Ultimately jobs in China are, or should be, a far bigger concern to the Politburo than even the housing bubble: as we reported previously, as a result of China’s economic slowdown, suddenly jobs are becoming all too scarce. According to China Daily, competition for white-collar jobs became fiercer in the third quarter, with more than 35 job seekers contending for the same position on average. This is a jump from 26 and 29 in the first and second quarters this year, a Chinese human resources website said on Tuesday. As a further reminder, China’s official unemployment rate rose from to 5.2% in September, and is now at least on paper, higher than the US.

* * *

But the most troubling aspect of the latest weak data is that it suggest s that China’s massive credit injection impulse the one deus ex which had previously worked without fail if only on a short-term basis – is no longer working.

Based on a report posted last week by China’s, and translated by Chiecon, China’s state owned enterprises added almost 6 trillion yuan (around 1 trillion dollars) of debt in September, according to Luo Yunfeng, an analyst at Essence Securities, as “an unprecedented increase in leverage”. This means that not only is the government abandoning its deleverage policy, it is actually increasing leverage.

Latest Ministry of Finance data shows that by the end ofSeptember total SOE debt had reached 77.68 trillion yuan, representing a increase of 5.93 trillion yuan on August, and an increase of over 11 trillion yuan in 2015.

The report goes on to say that “with China experiencing slowing economic growth, and no turnaround on the horizon, its seems likely the Chinese government will continue to increase leverage. In September, China Merchants Securities stated that since Chinese government debt leverage ratio is still low, lower than the US, Europe and Japan, there is still more room for leverage.”

What happens next: Haitong Securities said at the start of the year that in order to prevent systemic risk the focus over the next few years will be on government leverage. Based on the experience of other countries, monetary easing almost certainly follows an increase in government leverage, with interest rates in the long term trending to zero.

Just as we explained in “How Beijing Is Responding To A Soaring Dollar, And Why QE In China Is Now Inevitable” because before the page is closed on the current monetary system, everyone will be monetizing debt, all $200 trillion of it, just to give the status quo a few last gasps of air.

A few days ago we highlighted the story where China has run out of space to put oil it has purchased.  Zero hedged guessed that it would not be long before oil prices would fall because of this.
Now we see that crude supertanker VLCC rates are the lowest in 13 months
(courtesy zero hedge)

Crude Supertanker Rates Collapse As VLCC ‘Traffic’ To China Lowest In 13 Months

A few days ago we warned, confirming Goldman Sachs’ earlier analysis that the world was running out of space to store crude distillate products, that China was running out of storage space for crude oil as it dramatically ramped up its Strategic Petroleum Reserve ‘buy low’ plan. While the brightest indicator at the time was “about 4 million barrels of crude oil stranded in two tankers off an eastern port for nearly two months,” this week, the dial went to 11 on the oil-demand-fear-o-meter, as Bloomberg reports supertankers sailing to Chinese ports plunged to its lowest in 13 months, sending the daily rate for shipping crashing. The marginal demand-er of last resort just left the market.


As a reminder, this is what Goldman said: “the build in Atlantic distillate inventories this year has been large, following near-record refinery utilization in both the US and Europe, only modest demand growth, especially relative to gasoline, and increased imports from the East on refinery expansion and rising Chinese exports.”

As a result, and despite a cold winter in both Europe and the US last year, European and US distillate storage utilization is reaching historically elevated levels, driving a sharp weakening in heating oil and gasoil time spreads.



Such high distillate storage utilization has two precedents, leading in both cases to storage capacity running out in the springs of 1998 and 2009, pushing runs and crude oil prices and timespreads sharply lower. This raises the question of whether today’s oil market oversupply can rebalance simply through financial stress – prices remaining near their current low level through 2016 – or if operational stress – breaching storage capacity constraints and forcing prices below cash costs like in 1998 and 2009 – is ineluctable.

And then something very unexpected happened: the world quietly hit a tipping point when, according to Reuters, China ran out of space to store oil.

In a report explaining why “oil cargoes bought for state reserve stranded at China port” Reuters notes that “about 4 million barrels of crude oil bought by a Chinese state trader for the country’s strategic reserves have been stranded in two tankers off an eastern port for nearly two months due to a lack of storage, two trade sources said.”

And now, as Bloomberg reports,

VLCCs sailing to Chinese ports at lowest since Sept. 19, 2014, according to ship tracking data compiled by Bloomberg.


As China began its Strategic Petroleum Reserve build in Oct 2014: 89 VLCCs inbound for China…



and after ramping up its buying (and VLCC traffic and thus tanker rates),  just 59 ships are now signalling Chinese ports, down by 13 from week earlier…

And this has sent the daily VLCC rate from Mideast Gulf to East Asia crashing to less than half this year’s recent peak


And just like that China has, if only for the time being, run out of storage facilities. As we concluded previously,

How long until this translates into an actual drop in oil purchases, and even more importantly, how long until the U.S. itself finds itself in a comparable “overflow” bottleneck, leading to the next, and sharpest yet, drop in oil prices?

Charts: Bloomberg


Not only did China arrest Xu during the night, but they also arrested 3 High frequency traders for destabilizing the market
Fun and games over in Shanghai this morning:
(courtesy zero hedge)

China Arrests Three High Frequency Traders For “Destabilizing The Market And Profiting From Volatility”

Last night we reported the shocking news that none other than “China’s Carl Icahn” (or its “Warren Buffett” depending on the news source), Xu Xiang – who has ranked China’s 188th richest man with $2.2 billion in net worth according to the Hurun rich list – had been arrested in what was the latest crackdown against “malicious short sellers”, with Bloomberg adding that Shanghai police raided hedge fund Zexi Investment on Sunday, taking away computers and other materials, “in the latest attempt by Chinese authorities to crack down on strategies blamed for exacerbating a $5 trillion stock-market rout.”

Xu Xiang being taken into custody as part of the investigation into market manipulation

According to the FT, Xiang “was the the leading light of the “Limit-up Kamikaze Squad”, a group of hedge fund managers known for their fearless speculation.”

He was “captain” of the loose collection of fund managers centred on the coastal city of Ningbo in eastern Zhejiang province who are known for pushing favoured stocks up by the 10 per cent daily limit on Chinese exchanges.

To be sure the hedge fund’s stunning returns which saw 4 of its 5 funds return over 60% during the June to August Shanghai Composite rout, only added to the “case” against Chinese shorters in what will likely be the first of many such crackdowns against anyone who disobeys the market’s primary directive of only going higher.


There was an even more dramatic interlude in the news when Chinese media first reported, then retracted that an associated of Xiang’s, Wu Shuang “tried to resist escape, and was shot by police on the spot.”

But while the fate of both Zexi, and its various founders remains in limbo, just as notable is that while the US regulators dither, China has already launched its crackdown against High Frequency Traders.

As the raid of Zexi’s office was taking place, Shanghai police also arrested 3 suspects as they cracked a case of stock futures price manipulation involving over 11.3 billion yuan (US$1.8 billion), police said yesterday in a statement.

According to Shanghai Daily, Yishidun, a commercial company registered in Jiangsu Province’s Zhangjiagang City in 2012, was found to use an illegal stock futures trading software to destabilize the market and profit from volatility.

In other words, Yishidun was a high-frequency trader doing precisely what HFTs do not only in China but around the entire world: recall that none other than HFT poster child Virtu boasted that on the day of the August 24 HFT/ETF clash crash it had “one of its most profitable days in history.

Reuters adds that “the firm allegedly used software to buy up to 31 futures contracts in one second, said Xinhua, adding from early June to early July it made a net profit of over 500 million yuan.

More from the source:

The software uses complex algorithms to analyze the markets and are able to spot emerging trends in a fraction of a second. By essentially anticipating and beating the trends to the market place, institutions that implement high frequency trading can gain favorable returns on trades they make by essence of their bid-ask spread, resulting in significant profits.


The firm made 8,110 deals with 11.3 billion yuan in turnover, and made a total profit of 2 billion yuan since 2012. It made a profit of 500 million yuan from the Chinese stock market rout in June and July.

Based on their names, it would appear that the founders of the HFT firm were Russian, Georgy Zarya and Anton Murashov. The duo urged general manager Gao Yan to borrow 31 individual and corporate accounts to trade stock futures with nearly 7 million yuan capital.

As instructed by Zarya, Gao also sent over 1 million yuan to Jin Wenxian, a technical supervisor with a futures company who helped Yishidun cover up the transactions while using the software undetected by authorities and transferring funds, the statement said. While Gao, Jin and Liang Ze, another senior executive of Yishidun, have been arrested, the case is still under investigation.

Xinhua adds that “the company’s trade activities deteriorated the fluctuations in daily trade prices and affected then market trade prices and normal trade orders.

Hardly new, Chinese authorities have previously blamed “malicious” trading in stock futures for stoking share volatility that saw bourses slide over 40 percent since June. Investigations into market manipulation have so far netted journalists, senior executives in brokerages and even securities regulators.

However, the actual arrests of established, household name investors and now, high frequency traders, is a new development, and reminds us of what we said over a year ago, namely that when the market is going up and HFTs are assisting the creation of upward price momentum, everyone is happy. However, the moment a market crashes, there is no easier target than a bunch of math PhDs.

This has already happened in China. It will happen in the US once central bankers can no longer halt the next market crash which they themselves have guaranteed with 606 rate cuts and $13 trillion in liquidity injections.


Greek Bad Debt Rises Above 50% For The First Time, ECB Admits

It was almost exactly one year ago, on October 26, 2014, when the ECB concluded its latest European Stress Test. As had been pre-leaked, some 25 banks failed it, although the central bank promptly added that just €9.5 billion in net capital shortfall had been identified. What was more surprising is that to the ECB, the Greek banks – Alpha Bank, Eurobank Ergasias, National Bank of Greece, and PiraeusBank had entered Schrodinger bailout territory: they had both failed and passed the test at the same time. To wit:

These banks have a shortfall on a static balance sheet projection, but will have dynamic balance sheet projections (which have been performed alongside the static balance sheet assessment as restructuring plans were agreed with DG-COMP after 1 January 2014) taken into account in determining their final capital requirements. Under the dynamic balance sheet assumption,these banks have no or practically no shortfall taking into account net capital already raised.

Got that? According to the ECB, last October Greek banks may have failed the stress test, but under “dynamic conditions” they passed it. What this meant was unclear at the time, although as we explained this was nothing more than an attempt to boost confidence in Europe’s banking sector. This was the key quote from the ECB’s Vítor Constâncio: “This unprecedented in-depth review of the largest banks’ positions will boost public confidence in the banking sector. By identifying problems and risks, it will help repair balance sheets and make the banks more resilient and robust. This should facilitate more lending in Europe, which will help economic growth.”

It didn’t.

Eight months later when it became very clear what the ECB meant in practical terms, when the entire Greek financial system found itself in cardiac arrest as a result of increasing hostilities between the Greek government which was on the verge of severing its ties with Europe and an ECB backstop, and only €90 billion in Emergency Liquidity Assistance from the ECB – which also was this close from being withdrawn forcing Greece to implement draconian capital controls – prevent the total collapse of the Greek financial system which now, it is clear to everyone, has become a hostage of European “goodwill.”

Fast forward to today, when the ECB repeated its annual exercise in confidence-boosting futility, when it released the results of its latest stress test focusing on Greek banks, i.e., the “AGGREGATE REPORT ON THE GREEK COMPREHENSIVE ASSESSMENT 2015

This is what the ECB said in its executive summary:

The exercise is based on updated macroeconomic data and scenarios that reflect the changed market environment in Greece and has resulted in aggregate AQR-adjustments of €9.2 billion to participating banks’ asset carrying value. Overall, the assessment has identified capital needs totaling, post AQR, €4.4 billion in the base scenario and €14.4 billion in the adverse scenario.


Covering the shortfalls by raising capital would then result in the creation of prudential buffers in the four Greek banks, which will facilitate their capacity to address potential adverse macroeconomic shocks in the short and medium term and their capacity to improve the resilience of their balance sheet, keeping an adequate level of solvency.


Banks have to propose remedial actions (capital plans) in order to cover the entire shortfall (€14.4 billion), out of which a minimum of € 4.4 billion (corresponding to the AQR plus baseline shortfall) is expected to be covered by private means.

The tabulated capital shortfall results for the same 4 banks which a year ago “dynamically” passed the ECB’s “stress test” with flying colors, but failed it in every possible way this time around, were as follows:

Bloomberg’s take:

Greece’s four main banks must raise 14.4 billion euros ($15.9 billion) in fresh capital, after a review by the European Central Bank, as investors and taxpayers face the cost of repairing the damage resulting from six months of wrangling between the country’s government and its creditors.


The asset-quality review resulted in valuation adjustments of 9.2 billion euros at National Bank of Greece SA, Piraeus Bank SA, Eurobank Ergasias SA and Alpha Bank AE, the Frankfurt-based ECB said in a statement Saturday. In the stress tests, the banks’ capital gap amounted to 14.4 billion euros under a simulated crisis, and 4.4 billion euros under the baseline scenario. The four banks will have to submit recapitalization plans to the ECB’s supervisory arm by Nov. 6.



National Bank of Greece, the country’s biggest bank by assets, has a total capital shortfall of 4.6 billion euros, of which 1.6 billion euros arises from the baseline scenario. Piraeus has the biggest shortfall of all the lenders, having to raise 2.2 billion euros under the baseline scenario, and 4.9 billion euros in total. Alpha Bank only needs to raise 263 million euros under the baseline scenario, of a total shortfall of 2.7 billion euros. Eurobank has the lowest aggregate shortfall, totaling 2.2 billion euros, of which 339 million euros corresponds to the baseline scenario.

There was no commentary on the “odd” twist how in the span of one year, the same banks which last October were deemed stable and “dynamically” not needing any bailouts, not only had to implement capital controls to avoid a terminal deposit outflow, but now need to raise at least €14 billion.

None of this contradictory confusion is surprising, and neither was the reason for today’s stress test: it is just the latest desperate attempt to restore confidence in a country’s banking sector, a country which still has and will have capital controls for a long time, and to give depositors the confidence that keeping their cash with the local insolvent banks is safe.

The European Commission said in a statement that it is “encouraged” by the results, while Eurobank said that it targets maximum participation of high quality private funds in its capital increase. Alpha Bank said in a filing to the stock exchange that the result “demonstrates resilience,” despite “higher hurdle rates and the repayment of 940 million euros of state preference shares in 2014, which further improved the quality of capital.”

As Reuters further writes, today’s result was merely another optical exercise in putting lipstick on the Greek bank pig:

The fact, however, that the declared capital hole is smaller than the 25 billion euros earmarked to help banks in the country’s bailout may encourage investors such as hedge funds to buy shares.


Germany’s Deputy Finance Minister Jens Spahn said attracting investors would reduce the support needed from the euro zone’s rescue scheme, the European Stability Mechanism.

The ECM, which is the source of funds for the third Greek bailout, also promptly chimed in: “the comprehensive assessment conducted by European Central Bank on Greek lenders shows that ESM-backed loan program to Greece is adequately funded to accommodate additional capital needs in these banks, a spokesman for ESM says in an e-mail to Bloomberg. He added that the ECB stress test EU14.4b shortfall is “well within” EU25b buffer earmarked by ESM for Greek bank recapitalizations. After approval by euro-area member states, EU10b, which have already been mobilized and sitting in segregated account managed by the ESM, will be made available quickly to Greece.

He ended on a hopeful note: “with sufficient private-sector participation, the remaining EU15b won’t be needed.”

Well, a year ago Greeks were told there was nothing to fear and that no new capital was needed. This was a lie. Today we learn that, as expected, billions are needed… but less than the €25 billion set aside over the summer for the Greek bank bailout, so this is great news: after all it’s“better than expected.”

Alas, this is just the latest lie, and one year from today, we can be certain that tens of billions more in new capital will be required.

The reason: the biggest surprise from today’s stress test results was not in the capital shortfall measures, which will be promptly adjusted once again when the next Greek systemic crisis arrives – as it will because despite all the talk, absolutely nothing has changed either since last October or since the third Greek bailout. The surprise was the ECB’s admissions that the biggest problem not only for Greece, but all of Europe, the relentless surge in bad debt, continues without stopping.

Recall what we said in July, when noting that Greek Non-Performing Loans had risen to €100 billion.

Data from banks show that repayments declined to between 20 and 50 percent of performing loans, creating the conditions for a major increase in bad loans. This trend is in line with the estimates of the Bank of Greece, according to which NPLs amounted to 40 percent of the total at the end of 2014, with the likelihood they will grow further in the first half of the year.


As a reference point, there is a little over €210 billion in total Greek loans, both performing and non-performing, currently and about €120 billion in deposits. There is also about €90 billion in Emergency Liquidity Assistance from the ECB.


The total amount of bad loans (those which have remained unserviced for at least 90 days) has reached 100 billion euros, and the BoG data show that 70 percent of the loans that have entered payment programs remain nonperforming.


This is a major problem for the Greek Banks but even more so for The ECB as there is not much it can do to ‘control’ NPLs and given provisions for bad loans are a mere EUR40bn – there is a big hole here that no one is accounting for.


And since, this unprecedented and ongoing increase in NPLs is really all that matters, the only relevant data pointfrom today’s ECB exercise was the following as cited by Reuters: “As controls on cash withdrawals have squeezed the economy, loans at risk of non-payment have increased by 7 billion euros to 107 billion euros.

The punchline: following yet another tortured admission of just how ugly Greek balance sheets are, the ECB has confirms what we knew months ago, namely that more than  half of all Greek loans are now nonperforming, and that as much as 57% of the loans made by Piraeus Bank the bank which fared worst, are at risk with the other Greek banks not much better off.

What happens next?

As expected, the Greek parliament did not waste any time to approve legislation outlining the process of recapitalising the country’s banks, which it did earlier today. According to the FT, “the bill states that bank rescue fund HFSF will have full voting rights on any shares it acquires from banks in exchange for providing state aid. Under the bill the bank rescue fund will have a more active role, assessing bank managements.

The exact mix of shares and contingent convertible bonds the HFSF will buy from banks in exchange for any fresh funds it will provide will be decided by the cabinet.


The capital hole has emerged chiefly due to the rising number of Greeks unable or unwilling to repay their debt.

And therein lies the rub, because in the span of three months, Greek NPLs have risen from 47.6% of total to 51%: an increase of just over 1% in bad debt every month.

Which means that whether or not the latest attempt to boost confidence by the ECB, ESM, and the Greek parliament succeeds is moot. Yes, a few hedge funds may invest funds alongside the ESM, but in the end, as the NPLs keep rising and as long as Greek debtors refuse – or simply are unable – to pay their debt or interest, the next Greek crisis is inevitable.

The biggest wildcard is whether or not the Greek population will accept this latest promise of stability in its banking sector at face value: a banking sector which since July is operating under draconian capital controls. Granted, we should point out that in the past two months the deposit outflow from banks has stopped, and even reversed modestly adding about €900 million in deposits in the past two months, although that is mostly due to the inability of households and corporations to withdraw any sizable amount of funds.

The real answer whether Greek banks have been “saved” will wait until the shape of the final bank recapitalization takes place, even as NPLs continue to mount. Remember: Greek lenders are currently kept afloat only by the ECB’s ELA but there is a rush to get the recapitalization finished. If it is not done by the end of the year, new European Union rules mean large depositors such as companies may have to take a hit in their accounts.

If the proposed recap is insufficient – and it will be since under the surface the Greek economy continues to collapse and NPLs continue to mount – and a bank bail-in of depositors takes place (a bail-in which took place immediately in the case of Cyprus back in 2013 when Russian oligarch savings were “sacrificed” to bail out the local insolvent banking system), the next leg in the Greek bank crisis will promptly unveil itself, only this time Greece will have some 200% in debt/GDP to show for its most recent, third, bailout.

Finally, the real question is: having read all of the above, dear Greek readers, will you hand over what little cash you have stuffed in your mattress to your friendly, neighborhood, soon to be recapitalized bank?

Source: ECB, Bank of Greece

(courtesy zero hedge)



Draghi admits global QE has failed.  The European slowdown is probably not temporary.

(courtesy zero hedge)



Mario Draghi Admits Global QE Has Failed: “The Slowdown Is Probably Not Temporary”

Undoubtedly, the most amusing this about the prospect of more easing from the ECB (as telegraphed by Mario Draghi last week) and the BoJ (where Haruhiko Kuroda just jeopardized his status as monetary madman par excellence by failing to expand stimulus) is that both Europe and Japan both recently slid back into deflation despite trillions in central bank asset purchases. 

In other words, the market expects both Draghi and Kuroda to double- and triple- down on policies that clearly aren’t working when it comes to altering inflation expectations and/or boosting aggregate demand. Indeed, both Goldman and BofAML said as much last week. For those who missed it, here’s Goldman’s take

The subdued and increasingly persistent inflation dynamics that have prevailed in recent years may have eroded central banks’ best line of defence in the face of adverse disinflationary shocks. The energy-price-driven decline in Euro area inflation from 2012 to 2015 has thrown this possibility into even sharper relief.


By embarking on unprecedented balance sheet operations and forward guidance, central banks in Europe have sought to ring-fence domestic inflation expectations and signal their intention to maintain monetary conditions easy for a protracted period of time. Mario Draghi himself described the ECB’s asset purchase programme as a way of ensuring that very low (and, at times, negative) inflation does not lead wage- and price-setters to adjust their behaviour to a perceived lower steady-state rate of inflation. However, judging from market-based implied measures of longer-term inflation expectations, the effectiveness of the ECB’s announcements has proved limited so far.

Or, visually:

Meanwhile, many critics have accused the ECB of adopting policies that work at cross purposes with Berlin’s insistence on fiscal rectitude. That is, the more Draghi’s PSPP drives down borrowing costs, the less effective the “market” is at pricing risk which in turn means investors aren’t able to punish governments for budgetary blunders. In other words, Spain, Portugal, and Italy shouldn’t be able to borrow for nothing based on the fundamentals, but thanks to the ECB they can – so why implement reforms?

And so, ahead of what might fairly be described as one of the most highly anticipated ECB decisions in history, everyone’s favorite Goldmanite gave an interview to Alessandro Merli and Roberto Napoletano. The transcript can be found on the ECB’s website, but we’ve included some notable excerpts below.

Perhaps the most interesting passage comes at the outset with Draghi essentially admitting that global QE has demonstrably failed:

The conditions in the economies of the rest of the world have undoubtedly proved weaker compared with a few months ago, in particular in the emerging economies, with the exception of India. Global growth forecasts have been revised downwards. This slowdown is probably not temporary. To illustrate the importance of emerging markets, it is recalled that they are worth 60% of gross world product and that, since 2000, they have accounted for three-quarters of world growth. Half of euro area exports go to these markets. The risks are therefore certainly on the downside for both inflation and growth, also because of the potential slowdown in the United States, the causes of which we need to understand fully. The crisis led to a sharp drop in incomes. It is up to us to push them up again.

So, a couple of things there. First, we agree that the “slowdown is probably not temporary.” Indeed, as we’ve documented extensively, we’ve likely entered a period of lackluster global growth and trade, and there’s every reason to believe this is structural and endemic, as opposed to fleeting and cyclical. Second, the last bolded passage there speaks volumes about what’s wrong with the current central planner “strategy.” No, Mario Draghi, it’s not “up to you” to push up incomes. It’s “up t you” to get out of the way and the market figure this out. Central planners had their chance to boost wage growth and they failed – miserably.

Here’s Draghi on the effect oil prices are likely to have on inflation expectations going forward:

As far as the next few months are concerned, the most relevant factor will be the price of energy. We expect inflation to remain close to zero, and maybe even to turn negative, at least until the start of 2016.

Of course what Draghi doesn’t say is that ZIRP is a contributor. That is, when you ensure that capital markets remain wide open, uneconomic producers continue to dig, drill, and pump and that contributes to lower prices and thus, to a deflationary impulse.

And here’s Draghi explaining that the idea of the “lower bound” is becoming antiquated thanks to Europe’s descent into NIRP:

Now we have one more year of experience in this area: we have seen that the money markets adapted in a completely calm and smooth way to the new interest rate that we set a year ago; other countries have lowered their rate to much more negative levels than ours. The lower bound of the interest rate on deposits is a technical constraint and, as such, may be changed in line with circumstances.

Again, it’s all about what Darghi doesn’t say. The reason NIRP is still doable is because it hasn’t yet been passed on to household deposits:

Here’s a bit from Draghi on inflating away massive debt piles…

Low inflation has two effects. The first one is negative because it makes debt reduction more difficult. The second one is positive because it lowers interest rates on the debt itself. The path on which fiscal policy has to move is narrow, but it’s the only one available: on the one hand ensuring debt sustainability and on the other maintaining growth. If interest rate savings are used for current spending the risk increases that the debt becomes unsustainable when interest rates go up. Ideally, the savings are instead spent on public investments whose rates of return permit repayment of the interest when it rises.

And finally, here’s how the ECB chief explains away the idea that central bank stimulus is incompatible with fiscal retrenchment:

Structural reforms and low interest rates complement each other: carrying out structural reforms means paying a price now in order to obtain a benefit tomorrow; low interest rates substantially reduce the price that has to be paid today. There is, if anything, a relationship of complementarity. There are also other more specific reasons: low interest rates ensure that investment, the benefits from investment and from employment, materialise more quickly. Structural reforms reduce uncertainty regarding macroeconomic and microeconomic prospects. Therefore, it is the opposite, rather than seeing an increase in moral hazard, I see a relationship of complementarity, of incentive.

Sure. So what Draghi wants you to believe is that the EU periphery is committed to budgetary discipline and all the ECB is doing by artificially suppressing borrowing costs is making the transition to fiscal responsibility less painful. Here’s proof of how well that strategy is working:

But none of this matters. DM central bankers are all-in on this; that is, there’s no turning back. Just as night follows day, the ECB will ease further which will lead directly to more easing from the Riksbank and the SNB. Similarly, the BoJ will likely end up attempting to further monopolize the Japanese ETF market and may ultimately move into individual stocks in an insane attempt to control corporate management teams and mandate the wage hikes that Abenomics has so far failed to produce.

That said, both the ECB and the BoJ are running out of monetizable assets which makes us and others wonder whether they will not become gun shy, having realized that they’ve finally bumped up against the limits of Keynesian insanity.

Whatever the case, just note that while Mario Draghi is quite adept at playing emotionless bureaucrat (unless a twenty-something is throwing glitter at him), it seems clear that DM central bankers are now beginning to question their own omnipotence and as Kuroda will tell you, “the moment you doubt whether you can fly, you cease to be able to do it forever.”

 China is dumping German bunds:
(courtesy zero hedg)

German Bunds Tumble Amid China Reserve “Selling” Chatter

Amid the ever-expanding easing program in Europe (longer? more-er? different-er?), one of the largest concerns was that between the central banks domination of the markets, and the subsequent crushing of liquidity, finding willing sellers (at any price) to meet the needs of central bank asset purchasers could be a problem. However, as The FT reports, it appears the Chinese stepped up to the plate to ‘help’ The ECB (rather The Bundesbank) out from it dilemma. Just as we saw with Chinese selling US Treasuries (whether to diversify away from the major reserve currencies, deal with outflows, or to manage a liquidity crisis at home), The PBoC’s reserve management wing, the State Administration of Foreign Exchange, has been selling some of its German government bonds since the ECB began buying them in March, say two sources close to central banks in China and Europe. This news hasprompted further weakness in Bunds, despite expectations of Draghi unleashing more buying in December.

We previously asked “who will sell to The ECB?” in a detailed discussion of the scarcity of collateral constraints and lack of supply to meet quantitative easing requirements And here, rather ominously, is JPMorgan’s conclusion – phrased as politely as possible – why the ECB will fail in its QE endeavor, something we have been warning about for the past three years:

In all, we note the above analysis challenges the ability of the Eurosystem to meet its quantitative target without distorting market liquidity and price discovery.”

Well it appears The ECB has found a willing ‘external’ seller. As The FT reports,

Concerns over the whether the Bundesbank, Germany’s central bank, could find enough German bonds to buy have long surrounded the €1.1tn programme. The Bundesbank must purchase around €10bn of bonds a month as part of QE — a potentially problematic amount due to low levels of debt issuance by the German state, although ECB officials have repeatedly downplayed these concerns.


The Bundesbank has scoured the world for likely sellers, according to one person familiar with the matter, including Safe. Under pressure to make a return on its reserves portfolio, Safe has agreed to take advantage of the high prices on offer for the low-yielding German bonds.


“Chinese sales of German Bunds would certainly facilitate the ECB’s quantitative easing operations, so this is an instance where the interests of the ECB and PBoC are congruent,” said Eswar Prasad, an economist at Cornell University and former head of the China division at the International Monetary Fund.


Sales by Safe, thought to hold hundreds of billions of euros-worth of European government debt, would also help the ECB should an emerging market slowdown threaten the single-currency area’s recovery and force a more aggressive package of monetary easing.



Safe does not deal directly with eurozone central banks, which purchase bonds from investors via banks’ bond trading desks. But its sales of bonds are making life easier in the dealing rooms of Europe’s monetary powers, where traders have been handed the difficult task of finding €60bn of mostly government debt to buy each month as part of the QE package.

In response to this report from The FT, The ECB stated – somewhat obviously now that we know there is a large willing seller:

“We provide weekly updates of bond purchase volumes but do not comment on individual transactions. We have not yet seen any scarcity of bonds to buy.”


The Bundesbank declined to comment.

Of course, while confident in the ability of Draghi et al. to soak up whatever China selling may remain, at the margin, knowledge of China’s willingness to bulk dump its Bunds appears to be weighing on Germany’s bond markets more than the banker would like…


Finally, we note the following two headlines from Bloomberg, which just about perfectly explain how no one knows what it going on in today’s centrally-planned markets:

  • First… German Bund drops as Draghi cools QE talk.
  • And then… German Dax rises as Draghi hints at more QE.
Take your pick.


Early Saturday morning, we get word that a commercial Russian airplain with 224 on board crashed 30 minutes after takeoff after reaching cruising altitude.  It rapidly dived to the ground:

First story:

No Survivors After Russian Airplane With 224 On Board Crashes In Egypt’s Sinai,

With tensions already at deeply concerning levels between Russians and their various adversaries in the Middle East region, a few hours ago this Saturday morning, around 4:20am GMT to be precise, a Russian airliner carrying 224 in crew and passengers, including 138 women, 62 men and 17 children, crashed in Egypt’s Sinai peninsula. Egyptian officials say there are no survivors from the crash. This is the worst Russian air accident in history.

The Airbus A321 shown below, also known as Kolavia Flight 7K9268, operated by Russian airline Kogalymavia under the brand name Metrojet, was flying from the Sinai Red Sea resort of Sharm el-Sheikh to St Petersburg in Russia when it went down in a desolate mountainous area of central Sinai soon after daybreak.

The aircraft took off at 5:51 a.m. Cairo time (0351 GMT) and disappeared from radar screens 23 minutes later, Egypt’s Civil Aviation Ministry said in a statement. It was at an altitude of 31,000 feet (9,400 meters) when it vanished from radar screens. According to various flight tracking services the aircraft, having made an apparently smooth take off, lurched into a rapid descent shortly after approaching cruising altitude.


Airbus has confirmed the crash:

Airbus regrets to confirm that an A321-200 operated by Metrojet was involved in an accident shortly after 6:17 local time (04:17 GMT) over the Sinai Peninsula today. The aircraft was operating a scheduled service, Flight 7K-9268 from Sharm el Sheikh (Egypt) to St. Petersburg (Russia).


The concerns and sympathy of the Airbus employees go to all those affected by this tragic accident of Flight 7K-9268.


The aircraft involved in the accident, registered under EI-ETJ was MSN (Manufacturer Serial Number) 663, was produced in 1997 and since 2012 operated by Metrojet. The aircraft had accumulated some 56000 flight hours in nearly 21000 flights. It was powered by IAE-V2500 engines. At this time no further factual information is available.


In line with ICAO annex 13, an Airbus go-team of technical advisors stands-by ready to provide full technical assistance to French Investigation Agency – BEA – and to the Authorities in charge of the investigation.


The A321-200 is the largest member of the Airbus twin-engine A320 Family seating up to 240 passengers. The first A321 entered service in January 1994. By the end of September 2015, some 6500 A320 Family aircraft were in service with over 300 operators. To date, the entire fleet has accumulated some 168 million flight hours in some 92.5 million flights.



Second update:

Isis claims responsibility:




* * *

Third story:

Saturday afternoon


ISIS Releases Video Of Alleged Russian Airplane Mid-Air Exposion After It Claims Responsibility For Disaster

That didn’t take long: following the worst Russian airplane disaster in history, the question everyone was asking is who is responsible. Moments ago we may have gotten the answer.

A militant group affiliated to Islamic State in Egypt claimed responsibility for the downing of a Russian passenger plane that crashed in Egypt’s Sinai peninsula on Saturday, the group said in a statement circulated by supporters on Twitter.

Below is the full statement from a group alleging to speak on behalf of Islamic State, posted on their affiliate site, translated by the Guardian’s Jahd Khalil. It offers no evidence that the group brought down the plane, apart from their word.

Breaking: Downing of Russian airplane, killing of more than 220 Russian crusaders on board.


Soldiers of the Caliphate were able to bring down a Russian plane above Sinai Province with at least 220 Russian crusaders aboard.


They were all killed, praise be to God. O Russians, you and your allies take note that you are not safe in Muslims lands or their skies.


The killing of dozens daily in Syria with bombs from your planes will bring woe to you. Just as you are killing others, you too will be killed, God willing.

The tweet in question:

Many expressed their initial skepticism that ISIS is the responsible party:

An analyst with the Center for American Progress, Mokhtar Awad, told the Guardian that the Islamic State’s claim of responsibility “is quite vague.

“It doesn’t state how they were able to ‘down’ the plane allegedly. Even the most sophisticated of portable surface-to-air missiles cannot reach that high an altitude and are only a threat during periods of take-off or landing, but the plane had already climbed to its target altitude (from what we know thus far) when it began to likely experience technical failures.


The local affiliate, Wilayat Sinai, has been under some pressure over the past few months and may have jumped the gun on taking credit. Although there isn’t a precedent for such a spectacular lie about something they claim to have done, Islamic State itself has recently been embellishing more and more. For instance it claimed that the recent prison raid by Kurdish and US special forces were a total failure, when in fact video evidence surfaced showed them freeing the hostages. So this may be an instance of the rooster taking credit for the dawn.”

Of course, it could simply have been a bomb planted on the plane and set to explode after 20 minutes of flight time.

Another theory that has emerged is that a prior structural shock (in 2001) led to a spontenous midair disintegration:

What jumps out from this particular airplane’s record is an accident that it suffered on November 16, 2001 while landing at Cairo (while owned and operated by Middle East Airlines). As it touched down the nose was pointing at too high an angle and the tail hit the tarmac – heavily enough to cause substantial damage.


Tail strikes like this are not uncommon. The airplane was repaired and would have been rigorously inspected then and during subsequent maintenance checks. Nonetheless investigators who will soon have access to the Airbus’s flight data recorder will take a hard look at what is called the rear pressure bulkhead, a critical seal in the cabin’s pressurization system. Images from the wreckage in the Sinai show parts of the tail and rear fuselage near the site of this bulkhead lying clear of the rest of the debris, suggesting a possible break-up in flight.


In the event of a failure of this bulkhead, the airplane would have suffered a sudden and potentially explosive decompression; at its final recorded altitude of 31,000 feet the difference between the pressure inside the cabin and the air outside would have been at the point where such a catastrophic failure would be most likely to occur. The wreckage shows no signs of a fire or an engine-related explosion.

On the other hand, this is like saying Lehman had an earnings miss in 1994 and filed bankruptcy 14 years later.

Even Russia’s transport minister Maksim Sokolov has said that the claim Islamic State militants brought down the plane “can’t be considered accurate”.

Now in various media there is assorted information that the Russian [plane]… was supposedly shot down by an anti-aircraft missile, fired by terrorists. This information can’t be considered accurate.

However, to corroborate their claim, ISIS has allegedly released this shocking video showing what appears to be a mid-air bomb explosion.

Viewer discretion advised.

Although according to latest social media updates, even IS Sinai is stating that this video is fake.

As a reminder, this is where the alleged explosion occurred:


Whether or not the video is real or staged like many of ISIS’ previous “made in Hollywood” productions, is currently unknown.

Of course, is the same ISIS which a recently leaked CIA report revealed as being created by the CIA as a “tool” to overthrow Syria’s Assad.

In other words, a proxy organization of US “shadow government destabilizing operations”, trained in U.S. ally Turkey, and openly funded by both U.S. allies Saudi Arabia and Qatar, just took down a Russian plane.

The question now is did ISIS use a US-made surface-to-air missile to start what may be a very unpleasant war.

Also, does Russia get a carte blanche to begin attacks on ISIS in Egypt now, the same Egypt which recently “purchased” the two Mistral ships made by France, which were meant to be bought by Russia in a deal that was scrapped in the last minute due to NATO intervention?

One thing is clear: if the Russian population had any qualms about continuing the campaign in Syria, they were just eliminated in perpetuity.

We now await the Russian response, against both ISIS and its direct and indirect sponsors.

4th story late Saturday evening:
(courtesy zero hedge)

First Images Of Russian Passenger Jet Crash Site Emerge

Earlier today, ISIS claimed responsibility for the downing of a commercial airliner over the the Sinai Peninsula.

The crash killed all 224 people on board. 

Islamic State described the passengers as “crusaders” and “praised God” for their deaths:

Breaking: Downing of Russian airplane, killing of more than 220 Russian crusaders on board.


Soldiers of the Caliphate were able to bring down a Russian plane above Sinai Province with at least 220 Russian crusaders aboard.


They were all killed, praise be to God. O Russians, you and your allies take note that you are not safe in Muslims lands or their skies.


The killing of dozens daily in Syria with bombs from your planes will bring woe to you. Just as you are killing others, you too will be killed, God willing.

Although analysts have disputed the idea that ISIS could have brought down the plane from the ground, if the video circulated online is authentic, then someone knew exactly when to start filming and that, in and of itself, seems to suggest that this was premeditated. Then again, reports indicate that even IS Sinai claim the video is fake. 

Whatever the case, tragedy struck in the skies above Egypt today and below, find the first images and footage from the crash site.

As we noted earlier, the question now is whether Russia will expand its Mid-East operations and commence airstrikes in Egypt because one thing is clear: if the Russian population had any qualms about continuing the campaign against “terrorists”, they were just eliminated in perpetuity.

As for figuring out exactly what went wrong with the Airbus A321 that crashed this morning, don’t worry, John Kerry will soon get to the bottom of things:

“Secretary Kerry spoke to Foreign Minister Lavrov today to express the United States’ deepest condolences to the families and friends of those killed in the crash in Egypt of Kogalymavia Flight 9268. Secretary Kerry also offered to provide US assistance, if needed.”


5th story:  early Sunday morning:

(courtesy zero hedge)

Russian Plane “Broke Apart In The Air,” Officials Say As Investigators Frantically Search For “Clues”

Just when it seemed as though the conflict in Syria and the attendant ISIS saga couldn’t possibly get any more surreal, on Saturday a Russian passenger jet fell out of the sky over the Sinai Peninsula. Subsequently, ISIS claimed responsibility and released a video clip that purportedly depicts the mid-air explosion that brought the plane down.

All 224 people on board were killed including 17 children. It was the worst “accident” in the history of Russian aviation. Bodies are reportedly scattered as far as 8 kilometers from the crash site. “We found a three-year-old girl eight kilometres from the scene” of the main wreckage, one official told AFP. The picture shown below, which depicts Darina, a 10-month old girl killed in the crash staring at planes before flying to Egypt, has gone viral.

Now, as Russia mourns, authorities are scrambling to determine exactly what happened and more than a few observers contend that ISIS couldn’t possibly have shot the plane down given the altitude. Nevertheless, some international airlines have diverted traffic over the region which has been the site of clashes between the Egyptian government and militants.

Adding to the mystery, the plane’s co-pilot allegedly voiced concerns about the condition of the aircraft prior to the flight and while officials insist that it would be extraordinarily difficult for a terrorist group to hit a plane flying at 31,000 feet, Prime Minister Sherif Ismail says there’s “no evidence that anything unusual was happening on the plane before it crashed.”

Here’s more from Bloomberg:

Prime Minister Sherif Ismail said in a televised news conference on Saturday that it would be premature to speculate on the cause of the crash before the data on recorders were analyzed. 


Conflicting reports have emerged about whether the pilot, who was flying at an altitude of 31,000 feet, indicated a technical problem. While Civil Aviation Minister Hossam Kamal said the pilot hadn’t radioed an SOS call, the Dubai-based Al-Arabiya satellite channel reported he had sought permission to land at a nearby airport. 


“It is technically difficult to target a plane at that level,” Ismail said. “We have no evidence that anything unusual was happening on the plane before it crashed.”


Islamic State’s statement doesn’t specify how the plane was downed and the local affiliate may have jumped the gun to take credit, Mokhtar Awad, an analyst at the Center for American Progress, a research institute in Washington, said by e-mail. Russian Transportation Minister Maxim Sokolov said on state television that reports of a terrorist missile aren’t credible.


Former Israeli national security adviser Yaakov Amidror, an army reserves general, concurred that it was unlikely an Islamist group shot down the aircraft. But “other scenarios also have to be considered, especially the possibility that the plane was sabotaged at the airport before taking off,” Amidror said.


Preliminary investigations indicate the plane went down due to a technical problem, the state-run Ahram Gate website said, citing Egyptian security officials. The plane had reached cruising altitude before crashing in the remote


Al Hassana area of central Sinai, about 50 kilometers (30 miles) south of Al-Arish.Egyptian security forces have been waging a fierce campaign in the area against militants who have pledged allegiance to Islamic State.

Other experts claim that the plane’s movements just prior to the crash seem to rule out a terrorist attack.

In its final seconds Saturday, the Metrojet plane was bucking wildly, abruptly climbing and descending before communication was lost, according to, which tracks flight routes. At times it dropped as fast as 6,000 feet per minute, only to reverse and climb even faster, repeating that pattern several times. At other times, it slowed dangerously. About 24 seconds before losing contact, it dropped to 71 miles per hour from 470 miles, according to the data. Jetliners such as the Airbus 321 can’t stay aloft at such a speed.


If the FlightRadar24 data are correct, “it probably rules out sabotage,” said Paul Hayes, director of air safety and insurance at Ascend Worldwide. “It’s probably some sort of control problem.”

As a refresher, here’s a look at the flight path and data:

The aircraft was descending rapidly at about 6,000 (2,000 meters) feet per minute before the signal was lost to air traffic control.

And here’s a bit more color from Sputnik:

Experts from Egypt, Russia, and France have started analyzing the flight data recorders of the Russian airliner which crashed Saturday in Egypt killing 224, Egyptian media report.


The airliner’s flight recorders were discovered on Saturday night. The Russian transportation minister said they had no significant damages.


“There is minor technical damage. But there was no thermal impact as the Egyptian representatives say,” Maksim Sokolov said.


A Kogalymavia/Metrojet Airbus A321 en route to St. Petersburg from the resort city of Sharm El-Sheikh with 217 passengers and seven crew on board, crashed in the Sinai Peninsula, leaving no survivors. The Sinai air crash became the deadliest air accident in the history of Russian aviation, surpassing the 1985 disaster in Uzbekistan, where 200 people died.


And so, even as the “experts” claim that i) ISIS couldn’t have shot the plane down, and ii) that the data seem to “rule out” sabotage, one can’t help but note that Malaysia Airlines Flight 17 was brought down by a missile over Ukraine and furthermore, it’s not clear why “some sort of control problem” isn’t compatible with someone either hitting the aircraft with a projectile or else detonating an explosive on board. That is, when planes explode in mid-flight, it tends to lead to “control problems.” Indeed, Russian officials have confirmed that the plane “broke apart in the air”:

“It is too early to draw conclusions,” MAK executive director Viktor Sorochenko says. “Disintegration of the fuselage took place in the air, and the fragments are scattered around a large area [about 20 square kilometers]”, the official added.

Yes, it “broke apart”, which would appear to suggest that it in fact exploded. And so even as it will probably never be possible to definitively say whether or not the video released on Saturday is real or fake, we would note once again that if the footage is authentic, someone on the ground knew exactly when to start filming.


In any event, we’ll await the “official” word, although reports indicate that it could take weeks, or even months to determine exactly what happened here. That said, if there’s even a shred of credible evidence to corroborate the video shown above, don’t expect The Kremlin to wait around on the full report as IS in Sinai may soon find themselves shooting at other Russian jets in the skies above Egypt – only these jets will be shooting back.


Sixth story:  Monday morning
Looks to me like foul play!!
(courtesy Reuters)

Russian airline rules out technical fault, pilot error in Egypt crash

The Russian airline whose jet crashed in Egypt killing everyone on board said on Monday the crash could not have been caused by a technical fault or human error.

The crash, in Egypt’s Sinai Peninsula on Saturday, could only have been the result of some other “technical or physical action” which caused it to break up in the air and plummet to the ground, said Alexander Smirnov, deputy general director of the airline, Kogalymavia.

He did not specify what that action might have been, saying it was up to the official investigation to determine.

“The plane was in excellent condition,” Smirnov told a news conference in Moscow. “We rule out a technical fault and any mistake by the crew,” he said.

He said there had been no emergency call from the pilots to services on the ground during the flight, which took off from the Egyptian Red Sea resort of Sharm el-Sheikh and was bound for the Russian city of St Petersburg.

Kogalymavia’s deputy general director for engineering, Andrei Averyanov, said a 2001 incident when the plane’s tail section struck the tarmac on landing was fully repaired and could not have been a factor in the crash.

He said the aircraft’s engines had undergone routine inspection in Moscow on Oct. 26 which found no problems and he said in the five flights before the crash, the crew recorded no technical problems in the aircraft’s log book.

Oksana Golovina, a representative of the holding company that controls Kogalymavia, told the news conference the airline had experienced no financial problems which could have influenced flight safety.

(Reporting by Polina Devitt editing by Jason Bush and Janet Lawrence)

7th story

Russian Plane Disintegrated Due To “Mechanical Impact” Airline Claims, Hinting At Bomb Explosion

On Sunday, officials confirmed that the Russian passenger jet which crashed in the Sinai Peninsula killing all 224 people on board “broke apart in the air.” Although we cannot of course be sure, that does seem to suggest that the plane exploded.

Obviously, getting to the bottom of what happened to the Airbus A321 as it was flying to St. Petersburg from Egypt has serious geopolitical consequences. As we noted yesterday, if there’s any evidence to corroborate the notion that the aircraft was “destroyed” by IS Sinai, then militants in Egypt will soon find themselves shooting at other Russian jets – only these jets will be shooting back. 

On Monday, Kogalymavia (the airline operating the flight) is out insisting that neither pilot error or a problem with the plane itself could possibly have been responsible for the “accident.” The only explanation, according to the airline, is a “mechanical impact on the plane.” Here’s WSJ

Russia’s Kogalymavia said human and technical factors weren’t responsible for the crash, which killed all 224 people on board.


The Airbus A321 was flying to St. Petersburg, Russia, from the Egyptian resort of Sharm El Sheikh in Sinai, a popular destination for Russian tourists.


After climbing gradually to more than 33,000 feet, the jet dropped some 6,000 feet in about 22 seconds, according to preliminary radar data posted Saturday by a commercial website. In roughly 60 seconds, the data show the plane’s speed dropping to about 100 miles an hour, slower than the forward speed needed to continue safe flight. According to the data, which hasn’t been confirmed by investigators, the plane had been cruising at roughly 460 miles an hour.

(debris was scattered in an 8 kilometer radius)

Here’s more color from Sputnik who notes that any concerns about the condition of the plane (as allegedly voiced by the co-pilot prior to the flight) were unfounded:

The crashed Russian airliner had passed all necessary tests when entering the Kogalymavia fleet; and the technical condition of the plane was good, the company’s top manager said Monday. The aircraft’s engines were inspected in Moscow on October 26; no problems were found. Moreover, there were no problems with the quality of fuel used by the Russian airliner.


“In regard to fatigued cracks it should be noted that work on its assessment of metal fatigue on airliners is done every five years. We also conducted such work very carefully on this plane and that was in March 2014,” Kogalymavia flight director Alexander Smirnov said during a press conference in Moscow.


The tail part of the Airbus A321 plane had sustained damages in 2001, the airliner was fully repaired. The technical condition of the plane was normal, Kogalymavia officials said.

Meanwhile, Bloomberg examines the possibility that an explosive device was smuggled onto the jet:

While the Islamic State’s Sinai affiliate claimed responsibility for shooting the plane down, Egyptian and Russian officials said those claims weren’t credible. Only the most sophisticated ground-based missiles can reach 31,000 feet (9,450 meters), the cruising altitude at which the Metrojet encountered problems and began to fall.


That doesn’t rule out a bomb like the one that detonated aboard Pan Am Flight 103 as it was carrying holiday travelers from London to New York on Dec. 21, 1988. A small explosive device smuggled aboard in checked luggage blew out the side of the Boeing Co. 747 and it came apart over Scotland, according to the U.K.’s Air Accidents Investigation Branch report.


So far, neither Egyptian nor Russian officials have said there’s any evidence of a bomb. Explosive devices cause telltale pitting on nearby metal and also leave chemical residue, according to the U.S. National Transportation Safety Board, so an examination of the wreckage should tell investigators whether or not that was the cause.


One area investigators will pay close attention is damage to the Metrojet A321 when its tail struck the runway while landing in Cairo in 2001. The plane was repaired and returned to service, according to Ascend Worldwide Ltd., a London-based company that gathers data for insurers.


There have been at least two similar accidents caused by improper repairs after tail damage.

But Russia’s aviation watchdog, Rosaviatsia, says it’s premature to come to any conclusions:

“It is completely premature to speak about the reasons of this as there are not grounds. And I’d like to call on the aviation community to refrain from any premature conclusions.”

And here’s the company explaining that a modern passenger plane doesn’t simply “disintegrate” in mid-air.

“Before the A321 began falling, it most likely had received considerable damage to its construction that would not allow it to fly. Obviously, due to this, when the catastrophic situation started to unfold, the crew completely lost control over the plane, which would explain why there were no attempts to communicate and report on the emergency situation on board,” the airlines’ deputy general director of technical and production issues, Andrei Averianov, said at a press conference in Moscow.


External forces are the only possible reason of the deadly crash, Kogalymavia officials said Monday. Kogalymavia 7K9268 flight likely suffered substantial damages when it started to fall, officials said.


“A plane cannot break up in the air due to some sort of [system] failure. If we exclude any type of fantastic version, then theoretically a plane may break up because of large overloads. The Airbus 320 aircraft is a very reliable plane and has so-called protection in its control, which does not allow for the plane to become overloaded even if there is an error in piloting techniques. The only feasible explanation to the reason for the plane breaking up in mid-air would be a particular action, a mechanical or physical action on the aircraft. I’m not authorized to make any sort of conclusions, but a plane cannot simply disintegrate.”

Right. Or, as we put it on Sunday, even as the “experts” claim that i) ISIS couldn’t have shot the plane down, and ii) that the data seem to “rule out” sabotage, one can’t help but note that Malaysia Airlines Flight 17 was brought down by a missile over Ukraine and furthermore, it’s not clear why “some sort of control problem” isn’t compatible with someone either hitting the aircraft with a projectile or else detonating an explosive on board. That is, when planes explode in mid-flight, it tends to lead to “control problems.”

Still, offcials are hesitant to suggest that terrorism is indeed responsible. Here’s a rather vague explanation of what might have happened from Former NTSB investigator Alan Diehl who spoke to CNN:

Former NTSB investigator Alan Diehl told CNN he believes the “final destruction” of the plane could have been from “aerodynamic forces or some other type of G-forces.”

And here’s a bit more regarding reports that the co-pilot had reservations about the plane’s condition:

The ex-wife of the plane’s copilot, Sergei Trukhachev, said over the weekend that he had told his daughter he was concerned about the condition of the plane. “Our daughter had a telephone chat with him just before the flight,” Natalya Trukhacheva told Russia’s state-run NTV. “He complained before the flight that one could wish for better technical condition of the plane.”


But a Kogalymavia said such reports were irresponsible and that there was no record of the pilot or crew making any complaints.


Executive Smirnov said that he had personally flown the plane in recent months and that it was “pristine.”


The A321-200 was built in 1997, and Kogalymavia, which is also known as Metrojet, had been operating it since 2012, Airbus said in a statement. The aircraft had clocked up around 56,000 flight hours over the course of nearly 21,000 flights, the plane maker said.

So draw your own conclusions, but what does seem clear is that the plane did indeed explode which, unless you believe IS Sinai shot down a jet cruising at 31,000 feet, suggests that some manner of bomb was detonated on board. It’s either that, or you go with Alan Diehl’s “aerodynamic forces or some other type of G-forces,” explanation.

Whatever the case, at least 130 bodies left Egypt on Sunday evening bound for St. Petersburg.

Remember, the Sinai Peninsula is well within the range of Russia’s warplanes flying from Latakia:

In Turkey this morning:

Turkish Stocks, Currency Soar As Protesters Gassed, Possible Erdogan Assassin Shot After Elections

On Sunday, something “surprising” happened in Turkey: AKP rebounded from a relatively poor showing in June’s elections to collect nearly 50% of the vote at the ballot box. 

We are of course employing a bit of sarcasm when we say that the results were “surprising.” Sunday’s farcical elections are the culmination of a four month campaign by President Recep Tayyip Erdogan to restore AKP’s parliamentary majority and pave the way for a power grab that will entail alterations to the country’s constitution.

Make no mistake, Erdogan wasn’t shy about pulling out all the stops. He effectively engineered a civil war in order to scare the electorate out of supporting the pro-Kurdish HDP and the PKK has variously accused Ankara of being complicit in suicide bombings that have killed hundreds of Turks. Erdogan has also cracked down on the press and anyone who even looks like a dissenter leading directly to a scenario wherein a key emerging market has plunged into political and economic chaos. 

Of course the market hates uncertainty worse than almost anything else which is why sadly, Sunday’s election outcome (which represents nothing short of an usurpation of the democratic process) has sent the lira surging. 


As we noted on Sunday evening, this is the biggest rally since 2008.

Even as it isn’t entirely clear that Erdogan has the 330 seats he needs to expand his powers, the market is looking for a relief rally. Here’s Barclays:

According to the unofficial results of Turkey’s snap elections, the Ak Party got 49.4% of the vote, with the main opposition party CHP on 25.4%, nationalist party MHP on 11.9% and the Kurdish party HDP on  10.7%. With this outcome, the Ak party would win 316 seats in the Parliament, more than the 276 seats needed to form a single-party government structure, albeit less than the 330 to call for a referendum on changing the constitution.


We think the outcome is a positive surprise for the markets as pre-election opinion polls indicated coalition government scenarios. We believe two major short-term risks ahead of Turkey have been diminished now. 1) a weak coalition scenario or repeat of elections  and 2) rating downgrade risk ahead of Moody’s review on Dec 4th. However, medium-term risks are still valid, including: 1) uncertainty in the management of the economy with a major question being whether Mr Babacan, former Deputy Prime Minister who is responsible for economy will be the leader of the economy; 2) external factors that may continue to be a pressure on EM currencies and also Turkey in 2016; and 3) slow growth.


The Turkish equity market has fallen by 26% YTD, underperforming the MSCI EM Index by 16%. The correction brought down the 12-month forward earnings multiple to 10.7x and implies that Turkish market trades at a 13.5% discount to MSCI EM Index, nearly the highest discount level in the past 5 years.

And here’s a look at Turkish equities in the wake of the election:

But while the market cheers, HDP is crying foul, claiming widespread voter fraud (via Sputnik):

Turkey’s pro-Kurdish People’s Democratic Party (HDP) headquarters received complaints of fraud from polling stations across the eastern Turkish province of Agri, a Sputnik correspondent reported Sunday.


Intense security presence was observed throughout the polling stations, with entrance bans in place for foreign observers and journalists.


Leyla Zana, one of 80 HDP candidates into Turkey’s 550-seat Grand National Assembly, voted earlier in the northwest Agri city of Eleskirt. Zana also reportedly experienced problems with access to the station.

In the Kurdish city of Diyarbakir, police brought out the tear gas and water cannons as civilians protested the election outcome:

Another still shot:

Apparently, one dissatisfied citizen went so far as to attempt a one-man assault on a mansion where Erodgan was staying on Sunday evening. He was promptly shot, although there are competing accounts as to whether he committed suicide or whether he was killed by Turkish police.

Here’s the official account from state-run AA (via Bloomberg):

  • A person involved in an incident outside a mansion in Istanbul used by President Recep Tayyip Erdogan, who was earlier reported by local media as having been shot by police, shot himself, Turkey’s state-run Anadolu Agency says.
  • Person argued with guards at the guest entrance to the Huber mansion, then grabbed a guard’s gun, shot at police and then shot himself in the head, Anadolu says

Draw your own conclusions.

In any event, the question now is whether the PKK will step up attacks on government forces and whether Ankara will protest Washington’s move to station US commandos with the YPG in Syria.

In short, this is a mess that isn’t going to be cleaned up with one (possibly) rigged election. Investors may want to fade this rally…




Who would have thought this to be possible?

(courtesy zero hedge)

Saudi CDS Soars To 6 Year Highs

This weekend we saw an important action in thedowngrade of Saudi Arabia, highlighting just how far the EM crisis has carried. As Ice Farm Capital’s Michael Green notes, in response, Saudi CDS continues to climb,reaching its highest since 2009 (amid both default risk and devaluation concerns).


Now clearly Saudi’s distress is largely a byproduct of oil weakness. I create an “adjusted” Saudi CDS by netting out Germany and as you would expect this fairly closely tracks oil prices:


But this is what is perhaps concerning – because even with oil prices undercutting the 2009 lows, Saudi adjusted CDS remains well below the levels briefly achieved in that period.

Combined with the additional risks of a war in Yemen, Saudi succession challenges (which we have highlighted previously) and the emergence of ISIS, it’s perhaps surprising that the world’s view of Saudi Arabia has not deteriorated even more. As discussed in the weekly, theEmerging Market pain trade seems to be a fairly direct outcome of the European desire to weaken its currency to capture global growth.

With Draghi continuing to push, and Yellen still not acting to turn the US into the extreme global consumer by strengthening the dollar, the rising risks in Saudi Arabia are a reminder that growth weakness has its own feedback mechanism – if oil prices stay at these levels for an extended period of time, it appears unlikely that Saudi Arabia will remain the reliable source that the world is currently counting on.

Source: Ice Farm Capital

 The fall in oil has caused massive capital and current account cash outflow from a positive surplus of 4.2 % of GDP to a deficit of 7.9% of Canada’s GDP to vacate Canada.
This could bring on depression like conditions inside my country.
(courtesy zero hedge)

Forget China: This Extremely “Developed” Country Just Suffered Its Biggest Money Outflow Ever

While understandably all eyes have been fixed on every monthly capital outflow update from China (even the ones that the Politburo is clearly massaging), few have noticed that one of the biggest total outflows currently in the global developed economy is taking place right in America’s own back yard.

According to BofA’s Kamal Sharma, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.


Citing Sharma’s data Bloomberg writes that “money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.” In fact, based on the chart below, the outflow is the fastest on record.

“This is Canadian investors that are pushing money abroad,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Group AG in New York. “The policy in Canada the last 10 years has greatly favored investments in energy. Now the drop in oil prices made all that investment unprofitable.”

The reasons for the accelerating outflows are familiar, or mostly one reason: the collapse in crude oil, among the nation’s biggest exports, has dropped to half of its 2014 peak. “The slump has derailed projects this year in Canada’s oil sands – one of the world’s most expensive crude-producing regions. Royal Dutch Shell Plc’s decision to put its Carmon Creek drilling project on ice last week lengthened that list to 18, according to ARC Financial Corp.”

Worse, there does not appear to be any improvement, despite the recent stabilization in Brent prices:

More recent data on where companies and mutual-fund investors are putting their money show the trend extended into the second half of the year, suggesting demand for the Canadian dollar and the country’s assets is still ebbing. The currency is already down 11 percent this year, after touching an 11-year low against the U.S. dollar in September.

Where is all this capital going? Canadian companies have been looking abroad for acquisitions. Royal Bank of Canada is expected to close its $5.4 billion purchase of Los Angeles-based City National Corp. Monday, its biggest-ever takeover. It’s part of a net outflow of C$73 billion this year for mergers and acquisitions, both completed and announced, according to Credit Suisse data.

Canada’s stock market confirms this trend: nine of the 10 best-performing companies on the country’s benchmark stock index in the past two years have favored buying growth abroad rather than expanding at home.

Individuals are following suit.

“While international appetite for Canadian financial securities has held steady this year, domestic mutual-fund investors have pulled money from Canada-focused funds and plowed it into global choices for six straight months, the longest streak in two years, according to Investment Funds Institute of Canada data compiled by Bank of Montreal.”

Bloomberg calculates that more weakness for the CAD, and more capital outflows, are on deck as the Canadian dollar has to get cheaper to make Canadian businesses outside of the oil industry competitive enough with foreign peers to make them worth investing in, according to Benjamin Reitzes, an economist at Bank of Montreal.

Canada’s economic weakness was recently confirmed when it reported two months ago that it had entered its first recession since the financial crisis.


Earlier today, Canada’s manufacturing sector got even more bad news when the latest RBC Canadian Manufacturing PMI survey dropped to a record low in October, with output, new orders and employment all declining since the previous month. Moreover, new export sales dropped for the first time since April, with survey respondents noting that weaker global economic conditions had weighed on new business volumes.

In other words, not even the tumbling loonie is helping boost exports: a bedrock assumption of modern monetary policy.

Meanwhile, input costs rose at a sharp and accelerated pace in October, which placed pressure on operating margins and contributed to a further slight increase in factory gate charges.

Finally, the country is expected to post its 12th straight merchandise trade deficit this week, according to every economist in a Bloomberg survey.

Perhaps it is ironic: a year after we predicted the death of the petrodollar would cripple Emerging Markets around the globe (something which was confirmed in the China devaluation/EM debt crisis of 2015) the nation most impacted by the collapse in oil is neither China, nor – as many had expected – Russia, but what to many is a bedrock of economic stability: the AAA rated Canada.

How long until not Putin but Trudeau is seen in the White House, begging Obama to put an end to QE so that the US shale sector, thanks to infinite junk bond refills courtesy of the Federal Reserve and “investors” allocating other people’s money, will mercifully die and prevent Canada’s economy from sliding from recession into an outright depression?



Your early morning currency/gold and silver pricing/Asian and European bourse movements/ and interest rate settings/MONDAY morning  7:30 am

Euro/USA 1.1013 up .0019

USA/JAPAN YEN 120.64 up .420

GBP/USA 1.5465 up .0042

USA/CAN 1.3098 up .0031

Early this morning in Europe, the Euro rose slightly by 19 basis points, trading now just above the 1.10 level rising to 1.1013; Europe is still reacting to deflation, announcements of massive stimulation (QE), a proxy middle east war, and the ramifications of a default at the Austrian Hypo bank, an imminent default of Greece, Glencore,and now Nysmark and the Ukraine, along with rising peripheral bond yields, and the unsuccessful ramping of the USA/yen cross to just above the 120 dollar/yen cross. Last night the Chinese yuan after initially rising, fell  in value (onshore). The USA/CNY rate at closing last night:  6.3365 up .0031  

In Japan Abe went all in with Abenomics with another round of QE purchasing 80 trillion yen from 70 trillion on Oct 31/2014. The yen now trades in a slight southbound trajectory  as settled up again in Japan by 66 basis points and trading now just above the all important 120 level to 120.64 yen to the dollar.

The pound was up this morning by 42 basis points as it now trades just above the 1.54 level at 1.5465.

The Canadian dollar is now trading down 31 basis points to 1.3098 to the dollar.

We are seeing that the 3 major global carry trades are being unwound. The BIGGY is the first one;

1. the total dollar global short is 9 trillion USA and as such we are now witnessing a sea of red blood on the streets as derivatives blow up with the massive rise in the rise in the dollar against all paper currencies and especially  with the fall of the yuan carry trade. The emerging market which house close to 50% of the 9 trillion dollar short is feeling the massive pain as their debt is quite unmanageable.

2, the Nikkei average vs gold carry trade (blowing up)

3. Short Swiss franc/long assets (European housing/Nikkei etc. This has partly blown up (see Hypo bank failure).(blew up)

These massive carry trades are terribly offside as they are being unwound. It is causing global deflation ( we are at debt saturation already) as the world reacts to lack of demand and a scarcity of debt collateral. Bourses around the globe are reacting in kind to these events as well as the potential for a GREXIT>

The NIKKEI: this Monday morning: closed down 399.86 or 2.10%

Trading from Europe and Asia:
1. Europe stocks mostly in the green

2/ Asian bourses all in the red   … Chinese bourses: Hang Sang red (massive bubble forming) ,Shanghai in the red (massive bubble ready to burst), Australia in the red: /Nikkei (Japan)green/India’s Sensex in the red/

Gold very early morning trading: $1138.80


Early Monday morning USA 10 year bond yield: 2.17% !!! up 2 in basis points from Friday night and it is trading well below resistance at 2.27-2.32%.  The 30 yr bond yield falls to  2.95 up 2 in basis points.

USA dollar index early Monday morning: 96.87 cents up 3 cents from Friday’s close. (Resistance will be at a DXY of 100)

This ends early morning numbers Monday morning


WTI Crude Gives Up Friday’s Surge Gains, Back To $45 Handle, Amid China Storage, Tanker Fears

Disappointed “this time it’s different” analysts point out better-than-expected China PMI, a relatively large decline Friday for U.S. rig count, and overall sentiment today as reasons why crude oil prices should not be falling, but after hitting 2 week highs Friday, with algos running stops on every swing, it appears theharsher reality of China’s full storage, plunging tanker rates, an unquivering OPEC, and ongoing production levels is too much to bear for the bulls



As we noted previously, something very unexpected has happened: the world quietly hit a tipping point when, according to Reuters, China ran out of space to store oil.

In a report explaining why “oil cargoes bought for state reserve stranded at China port” Reuters notes that “about 4 million barrels of crude oil bought by a Chinese state trader for the country’s strategic reserves have been stranded in two tankers off an eastern port for nearly two months due to a lack of storage, two trade sources said.”

And now, as Bloomberg reports,

VLCCs sailing to Chinese ports at lowest since Sept. 19, 2014, according to ship tracking data compiled by Bloomberg.


As China began its Strategic Petroleum Reserve build in Oct 2014: 89 VLCCs inbound for China…



and after ramping up its buying (and VLCC traffic and thus tanker rates),  just 59 ships are now signalling Chinese ports, down by 13 from week earlier…

And this has sent the daily VLCC rate from Mideast Gulf to East Asia crashing to less than half this year’s recent peak


And just like that China has, if only for the time being, run out of storage facilities. As we concluded previously,

How long until this translates into an actual drop in oil purchases, and even more importantly, how long until the U.S. itself finds itself in a comparable “overflow” bottleneck, leading to the next, and sharpest yet, drop in oil prices?

And now for your closing numbers for Monday night: 3:00 pm
Closing Portuguese 10 year bond yield: 2.60% up 10 in basis points from Friday
Japanese 10 year bond yield: .316% !! up 1/2 basis point from Friday and extremely low
Your closing Spanish 10 year government bond, Monday up 8 in basis points.
Spanish 10 year bond yield: 1.75% !!!!!!
Your Monday closing Italian 10 year bond yield: 1.65% up 17  in basis points on the day: Monday/ trading 19 basis points lower than Spain.
Closing currency crosses for MONDAY night/USA dollar index/USA 10 yr bond:  2:30 pm
 Euro/USA: 1.1020 up .0016 (Euro up 16 basis points)
USA/Japan: 120.71 up 0.079 (Yen down 8 basis points)
Great Britain/USA: 1.5415 down .0007 (Pound down 7 basis points
USA/Canada: 1.3098 up .0032 (Canadian dollar down 32 basis points)

USA/Chinese Yuan:  6.337 up .019 on the day (yuan down)

This afternoon, the Euro rose by 16 basis points to trade at 1.1020.  The Yen fell to 120.71 for a loss of 8 basis points. The pound was down 7 basis points, trading at 1.5415. The Canadian dollar fell 32 basis points to 1.3098. The USA/Yuan closed at 6.3370
Your closing 10 yr USA bond yield: up 3 in basis points from Friday at 2.17%// ( trading below the resistance level of 2.27-2.32%)
USA 30 yr bond yield: 2.95 up 2  in basis points on the day and will be worrisome as China/Emerging countries  continues to liquidate USA treasuries
 Your closing USA dollar index: 96.89 up 6 cents on the day .
European and Dow Jones stock index closes:
London:  up 0.71 points or 0.01%
German Dax: up 100.53 points or 0.93%
Paris Cac up 18.55 points or 0.38%
Spain IBEX: up 57.50 points or 0.38 %
Italian MIB: up 39.88 points or 0.18%
The Dow:up 165.22 or 0.94%
The Nasdaq: up 73.40 or 1.45%
WTI Oil price;  46.12
Brent OIl:  48.81
USA dollar vs Russian rouble dollar index:  63.72 up 23/100 roubles per dollar
This ends the stock indices, oil price, currency crosses and interest rate closes for today.
And now for USA stories:


New York equity performances for today:


Stocks Melt-Up To Dot-Com Highs Amid Decouplings, Divergences, & Fun-Durr-Mentals

Dismal data this morning (ISM headline 3 year lows, ISM employment 6 year lows, construction spending growth weakened along with Atlanta Fed growth forecasts collapsing… but December rate-hike odds rose to 52.0%…


and stocks soared.. Nasdaq reaches Dot-Com highs…




But the day was full of decouplings and divergences…

The Energy sector led S&P stocks higher… which seems odd…


Credit markets broke away from stocks at the European close…but then broke higher as S&P panic-buying sent it through 2100…


Bonds and Stocks entirely decoupled after Europe closed…


VIX decoupled from stocks as they broke the key technicals…


Trannies once again decoupled from oil prices…


Major divergence between Nasdaq 100 and Nasdaq Composite…


Breadth is collapsing in Nasdaq (as cap weight dominates equal weight)…


Futures markets how the crazy swings of the last few days best…not Futures were ramped to unchange for the US open…


And stocks never looked back…


Energy led the market higher (despite lower oil)


*  *  *

Away from stocks, Treasury yields rose 3-4bps…



The USDollar gave up early gains intop the European close then rallied to close 0.2% higher by the close…


Commodities quietly ignored equity exuberances and drifted lower with crude down 1%…

Charts: Bloomberg


The crooks  (the bankers) are now going after the shorts:

(courtesy zero hedge)


Stunned By Today’s Furious Surge: Here Is What Happened

Another month-start massive short-squeeze…


Today saw the biggest short-squeeze in a month…+3.26% vs S&P 1.15%


Which is the same as we saw at the start of October…


It may be worth noting however that while today’s massive squeeze created a 1.15% rally in the S&P, it appears the momo is losing its mojo as when they did the same in October it created a 2.5% rally in the S&P.


Charts: Bloomberg


More conflicting numbers. The USA ISM manufacturing totally at odds with Markit PMI.  We had similar results a few months back.  I am going with the ISM data points)

(courtesy zero hedge)

ISM Manufacturing Tumbles To Weakest In 3 Years (Despite PMI At 7-Month Highs)

With Markit suggesting US Manufacturing is at a 7-month high (with new orders surging), The ISM appears to disagree as ISM Manufacturing PMI dropped to 50.1 – its lowest since Dec 2012. The silver lining in the ISM report is that it was a ‘Chinese beat’ – 50.1 vs 50.0 exp – but with the employment sub-index at its lowest since August 2009, the report is anything but positive. Along with export orders in contraction for the fifth month (while Markit claims highest new orders in 7 months), today’s US manufacturing outlook is just more baffle-em-with-bullshit.



Full breakdown…



Charts: Bloomberg


Atlanta Fed revises 4th Q GDP from 2.5% down to 1.9%.  This is the more reliable of indicators to the correct forecast.

(courtesy zero hedge)

Atlanta Fed Q4 GDP Forecast Tumbles From 2.5% To 1.9%

Just a few days after we got a very disappointing Q3 GDP print of only 1.5% annualized growth, of which healthcare spending accounted for over a third, the Atlanta Fed’s GDPNow forecast, which has traditionally been the most accurate indicator of real-time GDP swings, was just slashed by nearly a quarter from the 2.5% as originally reported on October 30, to just 1.9%.

The reason:

“The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 1.9 percent on November 2, down from 2.5 percent on October 30. Following this morning’s Manufacturing ISM Report On Business, the forecast for fourth-quarter real consumer spending growth declined from 2.9 percent to 2.4 percent while the forecast for real equipment investment growth declined from 3.9 percent to 1.3 percent.”


Wait, didn’t the market jump on the ISM which at 50.1, was spun as “better than expected”?

Whatever: it certainly was good enough to push the S&P500 back above 2,100, even if should Q4 GDP indeed stay at 1.9% and well below sellside consensus once again as the following chart from @not_jim_cramer shows…

… will mean 2015 full year GDP will grow below 2.0%, and far below the 2.4% “almost escape velocity” hit in 2014. Which in turn almost assures new all time highs for stocks: after all if whatever the Fed did hasn’t worked for 7 years, it will surely work in year 8.


Fed Co ops are dropping like a stone:  Today NY based  Health Republic Insurance closed doors and fraud was the issue.  It looks like 50% of all Federal co ops are failing

(courtesy zero hedge)

Obamacare Is A Disaster: Co-Op Insurers Across America Are Collapsing, And Now There Is Fraud

Two weeks ago we reported that in what at the time was still a rather isolated incident, Colorado’s largest nonprofit health insurer (aka co-op), Colorado HealthOP is abruptly shutting down, forcing 80,000 Coloradans to find a new insurer for 2016.

At the time, we said that the health insurer had been decertified by the Division of Insurance as an eligible insurance company because the cooperative relied on federal support, and federal authorities announced last month they wouldn’t be able to pay most of what they owed in a program designed to help health insurance co-ops get established.

In other words, one of the 24 co-ops funded with Federal dollars and created to give more policyholders control over their insurers – especially those who wished to stay away from various corporate offerings, had failed simply because the government was unable to subsidize it: the same government that spends $35 billion in global economic “aid” but can’t support its most important welfare program.

Fast forward to today, when we learn that another co-op, this time New York’s Health Republic Insurance – the largest of the nonprofit cooperatives created under the Affordable Care Act – is not only shuttering, but was engaging in fraud.

The fate of Health Republic Insurance was first revealed a month ago when the WSJ reported it would shut down after suffering massive losses “in the latest sign of the financial pressures facing many insurers that participated in the law’s new marketplaces.”

The insurer lost about $52.7 million in the first six months of this year, on top of a $77.5 million loss in 2014, according to regulatory filings. The move to wind down its operations was made jointly by officials from the federal Centers for Medicare & Medicaid Services; New York’s state insurance exchange, known as New York State of Health; and the New York State Department of Financial Services.


In a statement, Health Republic said it was “deeply disappointed” by the outcome, and pointed to “challenges placed on us by the structure of the CO-OP program.”


Health Republic has about 215,000 members, with about half holding individual plans and half under small-business coverage, a spokesman for the insurer said.

Today we learn that not only was this largest Co-op insolvent, it had also committed fraud. According to Politico, the collapsing insurance company that is creating headaches for hundreds of thousands of New Yorkers, misled state and federal officials about its finances, and will not be able to remain in business through the end of the year as originally hoped.

Because incompetence is one thing, but corruption: now that’s real government work, right there.

The accelerated wind down is clearly a problem: the more than 200,000 customers insured with the co-op will lose their coverage Dec. 1, and must find a new plan by mid-November, according to the state and federal government. Health Republic insures about 20 percent of the state’s individual market.

As Politico adds, the plan had been for Health Republic to make it through the end of the year. As recently as last week, company officials said there was enough in cash in reserve. But that apparently wasn’t true.

Health Republic’s finances are “substantially worse than the company previously reported in its filings,” according to the state Department of Financial Services, which oversees insurance in New York, and the Centers for Medicare and Medicaid Services.

One wonders just how much of the over $100 million “lost” in under two years was due to incompetence, and how much due to pure embezzlement by the co-ops operators. Somehow we doubt we will find the anwer where this taxpayer money has gone.

This does, however, lead to a more serious question: the implosion of Health Republic is merely the latest in what has become an epidemic of governmental failure. In fact, there are a total of ten co-ops, all of which were created by the Affordable Care Act and seeded with billions in federal funding, that have now failed, leading to questions whether the entire business model underpinning Obamacare is unsustainanble for everyone but a select few corporations.

For some more thoughts on this disturbing, if perfectly predictable epidemic, we go to Forbes’ Edmund Haislmaier who answers “Why Obamacare Co-Ops are failing at a rate of nearly 50%”

Cooperative health insurers (or co-ops) created under a federal grant and loan program in the Affordable Care Act seem to be falling like dominoes.


It started in February, when CoOportunity Health, which operated in Iowa and Nebraska, was ordered into liquidation. In July, Louisiana’s insurance department announced it was shuttering that state’s co-op. The following month brought news that Nevada’s co-op would also close. On September 25, New York ordered the shutdown of Health Republic Insurance of New York, which had the largest enrollment of all of the co-ops. Then, within the space of a week in mid-October, the number of failures doubled from four to eight, as state insurance regulators announced that they were closing the co-ops in Kentucky, Tennessee, Colorado, and one of the two in Oregon. Last week came news that South Carolina’s co-op will be closed, followed this week by the announcement that Utah’s co-op is also being shut down.


In sum, of the 24 Obamacare co-ops funded with federal tax dollars, one (Vermont’s) never got approval to sell coverage, a second (CoOportunity) has already been wound down, and nine more will terminate at the end of this year.


So what is behind this, so far, 46 percent failure rate?


To start with, the program was a congressional exercise in not merely reinventing the wheel, but doing a bad job of it.


Far from being a new idea, member-owned insurance companies—called “mutual” insurers—have a long history. For instance, life insurer Northwestern Mutual has been in business for over 150 years. Health insurers organized as mutual companies include, among others, Blue Cross plans in 10 states. Indeed, one of them, Florida Blue, converted into a policyholder-owned mutual company just last year. If having more health insurers owned by their policyholders was the goal, then there was no need for federal government action.


On the other hand, if the goal was to increase competition by stimulating the creation of new health insurers, then the ACA’s co-op program was, like other parts of the legislation, badly designed.


* * *


The program offered federal loans and grants to startup insurers but required that they be non-profits, not have anyone affiliated with an existing health insurer on their boards, and not spend any of their federal funding on marketing.


Co-ops are also subject to another provision of the ACA requiring all health insurers to pay out in claims at least 80 percent of premium revenues, or refund the difference to policyholders. By law, insurers can retain no more than 20 percent , out of which they must fund sales and administrative costs before booking any remainder as free cash. That significantly constrains a non-profit carrier’s ability to accumulate capital needed for growth, as it can’t raise funds through equity or debt offerings.


As if that wasn’t daunting enough, the law also required co-ops to focus “substantially all” of their activities on offering health insurance in the individual and small group markets—just as other provisions of Obamacare were thoroughly disrupting those markets by imposing new rules on insurers and complicated new payment arrangements for many of their customers.


Given all of the foregoing, 10 co-ops failing within two years is less surprising than the fact that 23 of them actually got to market in the first place.

As we pointed out two weeks ago, following this avalanche of failures, it will merely force even more individuals into plans offered by corporations, who as a result of the failure of their co-op competitors will have even more pricing power and premium hiking leverage.

Which means that “sticker shockers” such as the one below kindly informing them their health insurance premiums are rising by 60% crushing any desire to splurge modest “gas savings” on discretionary purchases…

will only get worse, as the premium increase even more with every passing year, as more Co-Ops fail, as more of the publicly-held insurers merge, and as a single-payer system, one which benefits not taxpayers but a select handful of shareholders, becomes the norm.

Haislmaier’s take: “The bottom line: Obamacare has made health insurance costlier and the business of offering it riskier. To survive in that new world, health insurers need to be cautious, or even pessimistic, and hope that their customers can continue to pay escalating premiums. It’s not a pretty picture.”

It isn’t but what are customers going to do: after all the “Affordable Care Act” is a tax (one which “boosts” GDP every quarter no less) and you must pay it by law;sadly the Supreme Court forgot that when it makes a service mandatory, corporations can charge any price they want. 

 And that’s precisely what they are doing.

Is this a C.Y.A. moment?
(courtesy zero hedge)

Fed Admits “Something’s Going On Here That We Maybe Don’t Understand”

In a somewhat shocking admission of its own un-omnipotence, or perhaps more of a C.Y.A. moment for the inevitable mean-reversion to reality, Reuters reportsthat San Francisco Fed President John Williams said Friday that low neutral interest rates are a warning sign of possible changes in the U.S. economy that the central bank does not fully understand. With Japan having been there for decades, and the rest of the developed world there for 6 years…


Suddenly, just weeks away from what The Fed would like the market to believe is the first rate hike in almost a decade, Williams decides now it is the time to admit the central planners might be missing a factor (and carefully demands better fiscal policy)… (as Reuters reports)

I see this as more of a warning, a red flag that there’s something going on here that isn’t in the models, that we maybe don’t understand as well as we think, and we should dig down deep deeper and try to figure this out better,” said San Francisco Federal Reserve President John Williams on Friday pointing out that low neutral interest rates are a warning sign of possible changes in the U.S. economy that the central bank does not fully understand.

Williams, who is a voting member of the Fed’s policy-setting panel through the end of the year, has said the central bank should begin to raise interest rates soon but thereafter go at a gradual pace; ironically adding that the low neutral interest rate had “pretty significant” implications for monetary policy, and put more focus on fiscal policy as a response.

If we could come up with better fiscal policy, find a way to have the economy grow faster or have a stronger natural rate of interest, then that takes the pressure off of us to try to come up with other ways to do it, like through a large balance sheet or having a higher inflation target,” Williams said. “It also means we don’t have to turn to quantitative easing and other policies as much.”

As we noted previously, depending on the importance of the credit channel, the Federal Reserve, by pegging the short term rate at zero, have essentially removed one recessionary market mechanism that used to efficiently clear excesses within the financial system.

While stability obsessed Keynesians on a quest to the permanent boom regard this as a positive development, the rest of us obviously understand that false stability breeds instability.


It is clear to us that the FOMC in its quest to maintain stability is breeding instability and that previous attempts at the same failed miserably with dire consequences for society. We are sure it is only a matter for time before it happens again.

And thus, Williams’ warning now seems oddly-timed at best, and cover-your-ass tactics at worst perhaps “the matter of time” is about to bite once again…

Valeant’s troubles continues as Goldman Sachs downgrades the company on Lack of confidence.
(courtesy zero hedge)

Goldman Downgrades Valeant On “Lack Of Confidence” After Charlie Munger Slams Company

On Friday afternoon, in addition to the endless Bill Ackman conference call which pushed the stock lower the longer it dragged on, the stock of troubled pharma Valeant was hit with a double whammy when Citron’s “short-seller” Andrew Left tweeted that he planned a new report on Valeant on Monday, following his Oct. 21 report that accused the company of using specialty pharmacies for “phantom sales” to inflate its financial results. In the tweet Friday, he said Citron would “update full story,” adding: “Dirtier than anyone has reported!!”

He may have exaggerated, because as the WSJ reported overnight Left since “pulled back on hints that he would unleash new bombshell revelations Monday about the drug company.”

A bigger problem for Valeant, however, emerged today when none other than Warren Buffett’s right hand man Charlie Munger in an interview with Bloomberg “tore anew into the besieged drug company, calling its practice of acquiring rights to treatments and boosting prices legal but “deeply immoral” and “similar to the worst abuses in for-profit education.” In his role as chairman of Good Samaritan Hospital in Los Angeles, Munger said, “I could see the price gouging.” And speaking as a storied value investor, he said, its strategy isn’t sustainable: “It’s deeply wrong.”

As Bloomberg adds, “Munger’s stance has extra significance, because some of the drugmaker’s largest shareholders follow the style of investing that he and Buffett, 85, popularized. Ackman frequently expresses his admiration for their firm, Berkshire Hathaway Inc. And Valeant’s largest investor, Ruane Cunniff & Goldfarb, which runs the Sequoia Fund, shares a decades-long history with Buffett.”

Munger, 91, brought up Valeant in March, before an audience of about 200 people assembled to hear him at the annual meeting of Daily Journal Corp., where he is chairman. He was discussing a passage in Buffett’s recent letter.


Companies like ITT Corp., Munger said, made money back in the 1960s in an “evil way” by buying businesses with low-quality earnings then playing accounting games to push valuations higher. Investment managers looked the other way. And worse, he added, it was happening again.


Valeant, the pharmaceutical company, is ITT come back to life,” Munger said at the gathering. “It wasn’t moral the first time. And the second time, it’s not better. And people are enthusiastic about it. I’m holding my nose.”

In other words precisely what we said on Friday: the biggest problem for Valeant is not whether or not the Philidor accusations lead to criminal charges, but that its roll-up strategy, which served Wall Street and especially Goldman, as much as it served VRX shareholders, is now finished with both the stock plunging and its bond yields soaring.

And perhaps to prove just how much clout Munger does indeed have, moments ago the most important Wall Street bank, Goldman Sachs, downgraded Valeant to Neutral from Buy, cutting its share price target from $180 to $122. From GS:

We downgrade VRX to Neutral from Buy and lower our 12-month DCF-based price target to $122 from $180. Since being added to the Buy List on 11/30/14, VRX is -36% vs. S&P +1%. Given the events that have transpired very rapidly in recent weeks that have raised many questions about certain aspects of VRX’s business model, we have less confidence the market will reward the stock anytime soon without clarity as to the path forward. We move to the sidelines until there is further visibility on how management will repair the reputational damage to the company, as well as grow its business effectively in this increasingly challenging environment.

And continues with its current view:

Current view


We continue to believe that longer term VRX’s fundamentals could justify a much higher valuation, but risk/reward in the stock in the near-to-medium term is less clear. We expect a much longer road than we previously thought for the dust to settle and for VRX to be able to regain enough investor confidence to attract a sufficient amount of new money into the stock. Key factors prompting our downgrade now: 1) We were surprised VRX’s decision to sever ties with Philidor wasn’t received better and it indicated to us investors remain very concerned that VRX’s troubles could potentially spill over into other areas of the business. 2) We’re more concerned about potential business risk for VRX with physicians, patients and customers as a result of all the recent developments; we think it’ll take at  least a couple of quarters of execution to have a better sense of that. 3) With healthcare out of favor and biopharma having contracted so much, we believe there are other stocks for investors to choose from with attractive valuations and not the same overhangs VRX has if new money returns to the sector.


We lower revenue/EPS estimates: 5%/9% in 4Q15 and 6-7%/11-12% in 2016- 2019E mostly to reflect the impact from terminating Philidor, as well as more conservatism on pricing, and modestly higher opex to improve VRX’s profile as a pharma company. Our lower PT is driven by lower estimates and terminal multiple (7x from 8x) due to higher execution risk given recent uncertainties. Key risks are pricing concerns, subpoenas, execution without Philidor, pace of M&A.

Gun to head: the Valeant bottom may well be in.



And now David Stockman takes on the flawed Valeant:

(courtesy David Stockman/ContraCornerBlog)

Wall Street Financial Engineering At Work—–How Valeant Got Vaporized

If you need evidence that Wall Street is a financial time bomb waiting for ignition look no further than the recent meltdown of Valeant Pharmaceuticals (VRX). In round terms, its market cap of $90 billion on August 5th has suddenly become the embodiment of that proverbial sucking sound to the south, having plunged by nearly two-thirds to only $34 billion by Friday’s close.
VRX ChartNo, Valeant was not caught selling poison or torturing cats during the last 90 days. What is was doing for the past six years is aggressively pursuing every one of the financial engineering strategies that are worshipped and rewarded in the Wall Street casino.

Indeed, Valeant’s evolution during that period arose straight out of financial engineering central. That is, it was a creature of Goldman Sachs and the various dealers, underwriters, hedge funds and consulting firms which ply the Bubble Finance trade.

At the end of the day, the latter have turned the C-suites of corporate America into gambling dens by attracting, selecting and rewarding company wrecking speculators and debt-crazed buccaneers to the top corporate jobs.

In this case, the principal agent of destruction was a former M&A focussed McKinsey & Co consultant, Michael Pearson, who became CEO in 2008.

Pearson had apparently spent a career in the Dennis Kozlowski/Tyco school of corporate strategy. That is, advising clients to buy, not build; to slash staff and R&D spending, not invest; to set ridiculously ambitious bigness goals such as taking this tiny Canadian pharma specialist from its $800 million of sales to a goal of $20 billion practically overnight; to finance this 25X expansion with proceeds from Wall Street underwriters, not internally generated cash. He even replicated the Tyco strategy of moving the corporate HQ to Bermuda to slash its tax rate.

Pearson’s confederate in this scorched earth corporate “roll-up” enterprise was Howard Schiller, a 24-year veteran of Goldman Sachs, who became CFO in 2011, and soon completed the conversion of Valeant into a financial engineering machine.

During their tenure, Pearson and Schiller spent about $40 billion on some 150 acquisitions. At the same time, they militantly eschewed investment in drug research and development in an industry who’s very purpose is the development of new drugs and therapies.

Yet the alternative strategy they peddled to the occupants of the hedge fund hotel that became increasingly crowded with VRX punters as its shares soared was downright nonsensical and economically vapid. It could only have thrived during the late stages of a Bubble Finance mania.

In essence, Pearson and Schiller claimed that the rest of the industry was infinitely stupid, and that tens of billions of market cap could be created instantly by the simple expedient of buying companies with seasoned drugs and then jacking up prices, often by orders of magnitude.

In fact, Valeant has acquired a reputation for ferocious price increases. In one year alone the company raised the price of 81 per cent of the drugs in its portfolio, by an average of no less than 66 per cent.

The point here is not to echo the Hillary Chorus in favor of government drug price controls. Quite the contrary. Despite a crony capitalist inspired patent regime and the endless legal obstacles thrown up by the Big Pharma cartel, the drug market is not immune to the laws of economics. Raise the price of drugs radically enough and you will attract competitors into the market with new formulations that circumvent the patent, or generics which will swamp it on expirtation.

Nor does that truth completely exempt even small volume or so-called orphan drugs. In those instances, it takes massive price gains to move the aggregate revenue needle. That is, exactly the kind of egregious increases that stir a political firestorm among users and providers and bring the Hillary brigade to the TV cameras.

Accordingly, Martin Shkreli’s 5000% increase of Daraprim went dark even faster than his Twitter account. Stated differently, what seasoned industry executives know that may have escaped the attention of 32-year Wall Street hot shots like Shkreli, or the spreadsheet jockeys who congregate in the hedge fund hotels, is that massive, wanton, overnight price escalation is not a business strategy that builds sustainable value and reinforces brand equity; its scalping tactic that works in the casino, but not the real world.

At the same time, they slashed staff and chopped down R&D spending to a comically low 3% of sales compared to the industry standard of 12% to 18%.

Finally, this Wall Street witches brew was stirred together in pro forma financials that assumed these price hikes would be permanent and that these back-of-the-envelope cost savings were immediate. The resulting profit projections, of course, had virtually nothing to do with the company’s actual results, but they did conform to sell-side hockey sticks like a hand-in-glove.

As the New York Times noted in an piece over the weekend:

Looking at Valeant’s real earnings compared with its make-believe ones exposes an enormous gulf. Under generally accepted accounting principles, the company earned $912.2 million in 2014. But Valeant’s preferred calculation showed “cash” earnings of $2.85 billion last year. That gap is far wider than at other pharmaceutical companies presenting adjusted figures.

Needless to say, it did not take long to turn Valeant into a veritable debt-mule. Its debt outstanding rose from $400 million in 2009 to $31 billion at present, and that’s the rub.

To wit, Valeant has been a cash burning machine under its Wall Street driven M&A spree. So it has no possibility of making ends meet under a continuation of the much vaunted strategy crafted by Wall Street wise guys.

Indeed, its demise was a near certainty. On the one hand, it was destined to blow-up if it kept “growing” via debt-fueled M&A. Contrariwise, its peak stock market value at 100X GAAP earnings was destined to implode if it stopped doing deals and triggered a mass exodus from its hedge fund hotel.

Needless to say, these Bubble Finance deformations have resulted from the lunatic cheap money and wealth effects levitation policies of the Fed. Financial repression and QE deeply subsidize corporate borrowing to fund financial engineering deals, reducing the after-tax cost of even sub-investment grade debt low single digit levels.

Likewise, ZIRP is the mother’s milk of Wall Street speculation; it enables hedge funds and other fast money traders to build-up positions in rocket ships like Valeant at virtually no cost through the options and dealer financing markets.

Indeed, as VRX’s market cap grew from $14 billion to $90 billion in just 36 months, it generated a daisy chain of rising “collateral” value that enabled leveraged speculators to chase its stock to an absurd height relative to the company’s GAAP financials.

During the 12 months ending in September, for example, VRX  generated only $2.54 billion of operating cash flow, but spent $14.3 billion of cash on CapEx, M&A deals and other investments.

Nor was that an aberration. During the 27 quarters since the end of 2008, VRX has generated a mere $7 billion in operating cash flow, but has consumed nearly $26 billion of cash on investments and deals.  Stated differently, it was a Wall Street Ponzi pure and simple.

(to be completed)


Well that about does it for tonight

I will see you tomorrow night




  1. Travis Christopher Prasifka · · Reply

    Who killed more on isis facebook release of Un En Dunce Bevel Corperation 97′ HSBC/FargoTrust


  2. Travis Christopher Prasifka · · Reply

    Igror penal trump


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